Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — EDUCATION AND SCIENCE

Secondary Schools

Mr. Knox: asked the Secretary of State for Education and Science how much was spent per pupil in secondary schools (a) in England as a whole and (b) in Staffordshire in the most recent year for which figures are available; and what were the comparable figures in 1978–79, at constant prices.

The Parliamentary Under-Secretary of State for Education and Science (Mr. Bob Dunn): In 1984–85 prices, local education authorities in England spent an average of £945 per secondary pupil in 1978–79 and £1,085 in 1984–85. The comparable figures for Staffordshire are £945 and £1,025.

Mr. Knox: Does my hon. Friend agree that those figures show an impressive increase in expenditure per pupil at secondary schools in Staffordshire and in the country as a whole since the Government came to office? How does he think the Labour party can justify claims that there have been cuts in education budgets since this Government came to office?

Mr. Dunn: The direct answer to that question is that the Labour party cannot justify such claims. All principal measures show steady improvements in education provision since the Government came to office. Not only is spending per pupil at record levels, but the overall pupil teacher-ratio is at its best level ever and class sizes are smaller than in 1979.

Mr. Hardy: Does the Minister accept that the Government have placed a substantial additional burden on secondary schools, not least in respect of the new GCSE? Is he aware that there are real unresolved needs with respect to the GCSE, that provision is grossly inadequate and that there is extreme anxiety in our schools about that provision? What good news, if any, can he give to schools about immediate decisions on that matter?

Mr. Dunn: The hon. Gentleman must accept that our expenditure plans for the forthcoming year show an increase in cash terms of 18·8 per cent. That will enable substantial improvements to continue, and we have, of course, provided extra money for the funding of GCSE and its introduction.

Mr. Alan Howarth: Will my hon. Friend say whether it is still the case in England—as we were told it was last summer—that for every five teachers and lecturers

there are more than three non-teachers employed full time in the education system? Does he feel that there may be scope for further streamlining of administrative structures to ensure that a higher proportion of spending comes through to schools and education?

Mr. Dunn: The responsibility for that rests with local education authorities. However, I am bound to say that my hon. Friend is quite right. In many authorities that claim a high expenditure per pupil a high ratio seems to follow once examination is made of the non-teaching staff. Many local authorities can do more to take out unnecessary non-teaching staff from their payrolls.[Interruption.]

Mr. Speaker: Order. It is good to see that there is such an interest in Education questions. I ask hon. Members to listen to the questions and the answers.

City Technology Colleges

Mr. Alex Carlile: asked the Secretary of State for Education and Science when he expects to make an announcement about the establishment of further city technology colleges in addition to the first at Solihull.

Mr. Evennett: asked the Secretary of State for Education and Science what further progress has been made towards establishing city technology colleges.

The Secretary of State for Education and Science (Mr. Kenneth Baker): I am making good progress in discussion with a number of prospective sponsors and will announce details of further city technology colleges soon.

Mr. Carlile: Will the Secretary of State come clean and tell us how much money has been committed in non-governmental sponsorship for those colleges? Will he confirm that the level of sponsorship so far committed is so low as to show his plans to be a complete white elephant?

Mr. Baker: The hon. and learned Gentleman cannot have heard that the first college was announced in Solihull only four months after I had announced the concept of city technology colleges. That college was sponsored by two companies, Lucas Industries and Hanson Trust. I can assure the hon. and learned Gentleman that there are several more in the pipestream and I will be announcing them fairly soon [HON. MEMBERS: "Pipestream?"] I am sorry, I should have said "pipeline". But it will be such a flow that it will turn into a stream. I am surprised that the Liberal party opposes these ideas, because city technology colleges increase choice. I would have thought that liberalism stands for more choice.

Mr. Evennett: I congratulate my right hon. Friend on his city technology college initiative, and I am sure that most people outside the House in the inner city areas will be grateful for them. However, who will be responsible for the curriculum for these new colleges and who will monitor standards?

Mr. Baker: The curriculum will be determined as laid out in the booklet on the city technology colleges, and it will depend upon a contract between my Department and the charitable trust that will run the colleges. The colleges will be monitored by Her Majesty's inspectors.

Mr. Flannery: Is the Secretary of State not whistling in the dark? It may be that only four months have passed, but


these colleges are a failure, and has not the Minister of State almost admitted that in public statements'? Will not such colleges cream off more students from the local schools? When the employers refuse to give the money, as they most surely will, will not the ordinary people have to pay for this white elephant?

Mr. Baker: The hon. Gentleman knows that the amount of money being provided to the state maintained sector is not being reduced. The money provided for the city technology colleges is extra money, and I expect shortly to announce several more colleges. I was told that one could not be started, but four months after my announcement of the scheme one has been started.

Mr. Pawsey: Is my right hon. Friend aware that the announcement on CTCs will be widely welcomed? For the past 20 years industry has been bemoaning the fact that people leave school without knowledge of technical subjects. Will my right hon. Friend dismiss the carping from Opposition Members as pure ignorance about both industrial and educational matters?

Mr. Baker: Many firms in Britain want to support these colleges, some with substantial sums of money, others with more modest sums. They see these colleges as fulfilling a real need in the inner cities, where the educational needs are greatest.

Mrs. Renée Short: Is the Secretary of State aware that many people regard city technology colleges as a rather ridiculous gimmick, and certainly as an attack on the local education authorities, as my hon. Friend the Member for Sheffield, Hillsborough (Mr. Flannery) said? If the Secretary of State has the additional resources that he says he has, why has he not invested them in polytechnics and universities to improve and build on the scientific base there?

Mr. Baker: I assure the hon. Lady that we are providing a substantial amount for technological education. This year we are extending TVEI nationwide at a cost of £90 million each year for the next 10 years—that is £900 million going straight to the state maintained sector. The hon. Lady says that the CTCs are a gimmick, but I remind her that many families in the inner cities will welcome the choice that these colleges will provide.

Mr. John Mark Taylor: Is my right hon. Friend aware that his initiative is welcome in Solihull, in the south of the borough, in my constituency, and in the north, in the constituency of my hon. Friend the Member for Meriden (Mr. Mills), where it will usefully serve the people? Is he further aware that it will also be welcome as a facility for Birmingham, being on the boundaries of that city, although he did not get the same co-operation from that city as he did from Solihull?

Mr. Baker: I thank the Solihull education authority for being willing to sell a redundant secondary comprehensive school. I am sure that the educational provision in Solihull will be improved significantly, and, in particular, the staying on rate of 16-year-olds.

Mr. Radice: Will the Secretary of State confirm that of the 1,800 companies that he has approached to fund CTCs, only eight have replied favourably? Has not British industry, so far from welcoming the idea, given the Secretary of State's plan a decisive thumbs down?

Mr. Baker: That is simply not true. I do not know where the hon. Gentleman gets his figures from. If he looks at the Financial Times today, he will see that the Davy Corporation has announced, on its own initiative, that it wants to support a CTC in Teesside. What I would like to know from the hon. Gentleman——

Mr. Radice: How many?

Mr. Baker: The hon. Gentleman must wait and see. Fairly soon he will have an answer. Why is he denying parents and children in the inner city areas the opportunity to benefit from this sort of education?

National Academic Qualifications

Mr. Dubs: asked the Secretary of State for Education and Science what plans he has to create an integrated national academic qualifications and courses system for those over the age of 16 years.

The Minister of State, Department of Education and Science (Mrs. Angela Rumbold): The structure of qualifications post-16 is a responsibility shared by the Secondary Examinations Council and the National Council for Vocational Qualifications. The Government look to these bodies to work closely together to develop greater coherence in qualifications.

Mr. Dubs: Does the Minister agree that the best way forward for those over the age of 16 is to have, first, an integrated qualification which covers both academic and vocational aspects, and, secondly, that that should be done in the context of tertiary colleges? Will she give her sympathetic approval to any plans put forward to establish tertiary education by the many education authorities that are now considering it? I should point out to her that in Wandsworth there is overwhelming support for that idea.

Mrs. Rumbold: The Government are anxious to ensure that the two bodies that I have spoken about, the Secondary Examinations Council and the National Council for Vocational Qualifications, should work together to ensure that post-16 qualifications can be meshed together at some time in the future. The organisation of schools post-16 is a matter for determination by the local education authorities, and we leave it to their good sense and discretion how best secondary education post-16 can be provided.

Mr. McLoughlin: Does my hon. Friend accept that with some education authorities one does not get good sense and that they try to destroy proven schools with excellent records in their sixth forms? Can she assure us that before any such plans are passed the Department will consider them carefully so that we do not destroy good proven sixth forms for the sake of some Socialist dogma?

Mrs. Rumbold: I can assure my hon. Friend that my right hon. Friend the Secretary of State, when considering reorganisation proposals from local authorities, looks carefully at the merits of each case and is in no sense committed to destroying schools of proven worth.

Mr. Sheerman: Have the Government not missed a great opportunity by imposing such narrow terms of reference on the A-level review? Was this not a real opportunity to integrate vocational and academic qualifications post-16? Is not the fact of the matter that


with the city technology colleges and this sort of review the Government want to keep a divide between the sheep and the goats at 16, and have an effective 16-plus?

Mrs. Rumbold: No. I am afraid that the hon. Gentleman has entirely missed the point. The National Council for Vocational Qualifications is a recent body, which is busy looking at the different vocational qualifications on offer at present. It is working closely with the Secondary Examinations Council. Ultimately, one hopes for a certain amount of mutual agreement about the types of qualifications for entry into higher education and the post-16 framework.

Education Standards

Mr. Thurnham: asked the Secretary of State for Education and Science what recent representations he has received about the raising of education standards; and if he will make a statement.

Mrs. Rumbold: My right hon. Friend regularly receives letters from members of the public and others concerned to improve educational standards. In recent months a large majority of these letters have supported the introduction of a national curriculum as a means of achieving that objective in schools.

Mr. Thurnham: In raising standards, will my hon. Friend take note of the pressing need for more highly skilled people to enter the engineering industry? Will she encourage more school leavers to take advantage of the places for technology and science in higher education?

Mrs. Rumbold: I note my hon. Friend's remarks about engineering and technology job opportunities. The Government have frequently emphasised the need for better and more systematic careers education. We hope to take measures shortly to encourage local education authorities to bring a new coherence to careers provision for young people.

Mr. Weetch: Is the Minister aware that there has been a great deal of talk from the Department about standardised tests of attainment and about a core curriculum, which suggests a centralised approach? On the other hand, is she aware that the Education (No. 2) Act 1986 devolved the responsibility for those matters to local schools and headmasters? Are not those policies going in opposite directions?

Mrs. Rumbold: No, they are not. I hasten to assure the hon. Gentleman that we are considering, not a core curriculum, but the possibility of introducing a national curriculum during the course—[HON. MEMBERS: "What is the difference?"] If Opposition Member do not know the difference, they will have to learn and decide what it is for themselves.
To return to the hon. Gentleman's question, we hope that after consideration and consultation with all those within the education world about the national curriculum, we will come up with a responsible decision about how it should proceed. Benchmarks are important to establish pupils' achievements on the course.

Mr. Onslow: Does my hon. Friend think that the leaders of the teachers' unions have a part to play in raising education standards? Also, does she think that they are playing it?

Mrs. Rumbold: All teachers have a part to play in raising education standards. For the most part the professional quality of our teachers is excellent. They work hard towards the goal of improving standards and achievements in our schools.

Mr. Ashdown: Will not the next real marker for standards be the GCSE to be taken this year? Does the Minister realise that the resources and advice provided by her Department for that examination are wholly inadequate to meet the task and that as a result for 600,000 14-year-olds this year the GCSE will be at best a raw deal and at worst a blight on their future chances?

Mrs. Rumbold: I advise the hon. Gentleman to study a little longer those matters of education for which he is now spokesman. The GCSE will first be taken in 1988. We have made very good provision — [Interruption.] Will hon. Gentlemen listen?—[Interruption.]

Mr. Speaker: Order.

Mrs. Rumbold: We have made very good provision for in-service training for teachers and for books and equipment for the GCSE. In the current year substantial sums will be available for both those matters in order to enable teachers to deliver the GCSE.

Local Education Authorities (Resources)

Mr. Favell: asked the Secretary of State for Education and Science if he has any plans to ensure that local education authorities make more efficient use of their resources.

Mr. Kenneth Baker: The Government's expenditure plans include a number of measures designed to promote efficiency among local education authorities. These include targets for the removal of surplus places from the schools and for tighter staffing ratios in further education.

Mr. Favell: I thank my right hon. Friend for that answer, but what is to be done about the hangers-on? Do not recent figures show that some local education authorities employ twice as many support staff as necessary and then bleat that they have insufficient sums to pay the teachers, provide equipment or maintain the schools?

Mr. Baker: My hon. Friend is on to a good point and, indeed, he tabled a written question about it last week. The point is that there is a large administrative tail in many local education authorities. Much of the money would be better spent on supporting teaching with more books, services and equipment.

Mr. Eastham: If the Secretary of State is sincere about using education resources efficiently, may I draw to his attention the fact that since the secondary reorganisation in 1982 eight secondary schools in Manchester have been on split sites awaiting permission from the Department to spend money on putting the schools on one site, which would bring greater efficiency? When will he do something about that?

Mr. Baker: This year current spending on education is planned to increase by 19 per cent., or £2 billion. [Interruption.] As a result of the conduct of the economy over the past seven years the Government have been able both to increase expenditure on social priority areas and to cut taxation.

Mrs. Kellett-Bowman: Will my right hon. Friend ensure that nothing in this drive will harm highly efficient, small, rural schools, which turn out such exceptionally good results?

Mr. Baker: I can reassure my hon. Friend and the whole House that rural schools, principally rural primary schools, provide a necessary and valuable contribution to education and to society. I can assure her that any proposals for closure are examined most carefully before they are approved, if they are approved.

Mr. Andrew F. Bennett: Does the Secretary of State accept that one of the measures of a local education authority's efficiency is the number of nursery places that it can provide? Does he further accept that some of the best provide nursery places for two thirds of their children and some of the worst provide none? Is it pure coincidence that the best 10 providers are Labour-controlled authorities and the worst 10 are Conservative or alliance-controlled authorities?

Mr. Baker: A higher proportion of rising fives and children below four years of age are now going to some form of nursery education than ever before. That is the record of this Government.
As regards the spending differences between Labour and Conservative authorities, some Labour authorities spend a little more than Conservative authorities, but Conservative authorities get as good, and in some cases better, examination results at a lower cost.

Student Grants

Mr. Allan Stewart: asked the Secretary of State for Education and Science what recent representations have been received by his review group on student grants; and if he will make a statement.

The Parliamentary Under-Secretary of State for Education and Science (Mr. George Walden): The review group has received written evidence from over 100 organisations, nine of which have been invited to give oral evidence. Some 1,688 letters have been received about the review.

Mr. Stewart: I thank my hon. Friend for that information, but will he tell us about the evidence and representations that he has received concerning systems of financial support for students in other countries? Is it not instructive that in America the student loan system has been associated with better rates of access to higher education then we have had in this country?

Mr. Walden: I share my hon. Friend's view. I should only add that a lot of nonsense has been put about by the National Union of Students and others to the effect that it is the Government's policy to replace all grants by loans. That is not the Government's policy. There would be serious disadvantages in going down that road in this country's circumstances. We recognise that an absolutist approach could act as a disincentive to the children of lower income families, women, mature students, the disabled and others. Among other things, my review is looking at a system of top-up loans to supplement grants. The purpose of the review is to improve the overall prospects of students, not to make things worse.

Mr. D. E. Thomas: Will the Minister explain to the House how access and age participation in higher education can possibly be increased through a loan scheme as contrasted with an open-grant scheme?

Mr. Walden: The hon. Gentleman must first explain to the House how an admitted decrease in the value of the grant over the last few years, and during the 1970s, has coincided — particularly in the last few years—with a massive increase in access?

Mr. Dorrell: Has my hon. Friend seen reports that the right hon. Member for Plymouth, Devonport (Dr. Owen) supports the total replacement of student grants with a system of student loans? Does he know what the Liberal party thinks about that proposal, and will he accept my word that his announcement today, that the Government have no such proposals, will be welcomed in every British university?

Mr. Walden: Everyone knows that the question of student grants is complicated, but the alliance has confused things beyond reason. I have heard the hon. Member for Yeovil (Mr. Ashdown) say that he is against loans, but I have here a copy of a speech by the right hon. Member for Plymouth, Devonport, in which he says:
Students would be able to take out loans for part of their costs … Students would also be able to take out loans for topping up basic social security levels of support".
The alliance has a duty to clarify to the House and to the country its position on student loans.

Mr. Meadowcroft: Why does the Minister believe that students can survive in real terms on less grant than he had? What is the difference between loans and the overdrafts, into which the Government have forced students?

Mr. Walden: I am disappointed that the reply of the hon. Gentleman did not direct itself to the perfectly reasonable question that I put to him. I am glad to see that the right hon. Member for Devonport has now joined us, and I hope that he will give us a reply.

Mr. Peter Bruinvels: Does my hon. Friend accept that it is a privilege to go to university and that our grant system is the fairest and most generous in Western Europe? Should we not, as a matter of urgency, be looking at a partial loan, at least, and encouraging our students to look to a career prospect at the end of their time at university? In other words, they go to university with a career aim at the end of it.

Mr. Walden: I share my hon. Friend's view. I would add only that it is clear now that the Conservative party is the party of social equity. That is why we are considering the possibility of sharing the cost of student maintenance between taxpayers, parents and students.

Mr. Strang: Is it not the Government's policy that it is desirable to increase the proportion, if not the absolute number, of working-class students attending our universities? Will he accept that even a top-up loan in this context would not be helpful?

Mr. Walden: The hon. Gentleman is inadvertently perpetuating the myth that access to higher education for those from low-income backgrounds is pre-determined by the current level of the grant. That is not the position. Access is pre-determined to a large extent by the quality of the schools which students attended, and the Opposition have much to answer for on that score.

Mr. Powley: Is my hon. Friend aware of the demonstrations that are taking place at the University of East Anglia in my constituency about the level of student grants? Is he further aware that in the latest incident a Mr. Osborne, a worker at the university, was physically injured? Will my hon. Friend accept that such demonstrations are counter-productive to the cause of the student fraternity?

Mr. Walden: In recent months I have often found myself wandering in what are called loan-free zones. I agree with my hon. Friend that it is deplorable that students should behave in the way to which he has referred. In my experience — I have been to many education institutions—the extremists are a minority. I have met many reasonable students who understand perfectly well what we are about in our review. They understand also that any Government will be faced with spending priorities. They know that student grants come from the same budget as the aid budget, the National Health Service budget and everything else.

Mr. Andrew F. Bennett: Will the review be available in time for the debate during the general election, or will it be smuggled out afterwards? If the Chancellor of the Exchequer has so much money in his pocket, why cannot a little of it be used to increase student grants this year so that a start can be made to counter the erosion that has occurred, or are the Government insisting on penalising students to make it easier to introduce loans in due course?

Mr. Walden: The hon. Gentleman has involved himself in a double hypothesis. He does not know when the next general election will be and nor do I. I do not know when I shall complete the work on my review. I know, however, that I plan to do a thorough job. Likewise, the hon. Gentleman does not know when I shall complete that work. That being so, how can I possibly answer his supplementary question?
Secondly, the hon. Gentleman referred to my right hon. Friend the Chancellor of the Exchequer, who will be giving us some news later. I have read the suggestion in the press that there may be several billion pounds to be given away. I know nothing about that. I know only that the National Union of Students has made an advance demand for £2 billion from the taxpayer.

School Buildings

Mr. Livsey: asked the Secretary of State for Education and Science what number and proportion of unpublished reports of recent school inspections by Her Majesty's inspectors contain adverse comment about the state of school buildings; and if he will make a statement.

Mr. Dunn: My right hon. Friend publishes all formal reports to him by Her Majesty's inspectors following their inspections of schools in England. All the reports refer to the state of school buildings and accommodation. I cannot comment on reports which are still in preparation.

Mr. Livsey: Does the Minister accept that in the unpublished reports there are descriptions of school buildings that are in an unsatisfactory state and that the education of 1 million children is affected by this? Is it not a disgrace that 168 of these reports have not yet been published?

Mr. Dunn: I find it difficult to comment on reports that have not yet come before us following their publication. I should like to have the hon. Gentleman's source of information.

Mr. Patrick Thompson: Is my hon. Friend aware that too many head teachers have to spend too much time telephoning various departments of their county hall when dealing with school repairs? Would it not be a good idea if head teachers had more authority in dealing with these matters and local authorities had less?

Mr. Dunn: That is precisely what our plans will bring about.

Mr. Litherland: Is the Minister aware that the district auditor in Manchester has drawn attention to the insufficient funding of preventive maintenance and has concluded that that will lead to irreparable decay and higher maintenance costs. Does the Minister not believe that he is following a short-sighted policy?

Mr. Dunn: I do not, and the facts speak for themselves. Our plans for local authority current expenditure in 1987–88 provide for a 14 per cent. increase, in real terms, in spending on the repair and maintenance of school buildings compared with what local authorities spent in 1984–85.

Dr. Hampson: Does my hon. Friend agree that some of the accusations about school buildings are not what they seem? Did my hon. Friend notice that last week the Daily Mirror devoted its front page to the story of the demolition of a school in Leeds, Brownhill school? That report was grossly misleading because that Victorian school—a fine school—was demolished by the Labour council only because it was suffering as a result of mining subsidence. Far from there being a shortage of money, that school is being replaced by two new schools.

Mr. Dunn: I understand precisely the point that my hon. Friend is making. I believe that we would have a far better debate in the House and in the country on the future school stock if Opposition Members accepted their share of the responsibility for the state of some of our schools.

City Technology Colleges

Mr. Wainwright: asked the Secretary of State for Education and Science what is the number of pupils now expected to be achieved by the first city technology college in each of the first four years of operation; and if he will make a statement.

Mrs. Rumbold: The build-up of pupils in the first city technology college will depend on decisions yet to be taken about the preparation of the accommodation and the admission of pupils. In our discussions with sponsors we have emphasised that where possible we would like more than one year group to be admitted to a CTC from year one, and that we expect to see them move to full capacity as quickly as possible.

Mr. Wainwright: As to the initial stages of this first technology college to be established, about what proportion of the total cost will be covered by the sponsorships that have so far been obtained?

Mrs. Rumbold: The proportion of the cost for which we have sponsorship relates to the capital, that is the cost of the buildings. My right hon. Friend will be supplying the


costs for the revenue expenditure and that will depend on the number of students who enter the college at the first stage.

Mr. Holt: May I thank my hon. Friend on behalf of my constituents in Saltburn and Langbaurgh for the wise decision to keep the Huntcliff school open. I hope that my hon. Friend does not seek to rest on her laurels or those of her colleagues, because in Langbaurgh planning application is already at an advanced stage for a CTC. The public notices are up and the money is coming in, led by Davy International. Please do not listen to Alistair Graham, listen to the people of Teesside. They want the CTC.

Mrs. Rumbold: I am extremely grateful to my hon. Friend. I know that the initiative for the CTCs is widely welcomed, not only by people and parents, but by industrialists.

Mr. Skinner: The truth of the matter is that industrial chiefs are not sending money for those colleges for two principal reasons. First, they are fed up to the back teeth with the Tory party chairman sending begging letters asking for money to fight the general election. One of them was alleged to have said, "They have a damned cheek asking us for money to fight the election and asking us for money to look after these colleges at the same time." That is the real truth of the matter and that is why the Government are unable to get the money they thought they would get in the first place.

Mrs. Rumbold: Quite apart from the fact that I would have liked to know the second reason, I can assure the hon. Gentleman that all his speculation is completely unfounded. The CTCs are finding good support from industrialists.

Teachers (Pay and Conditions)

Mr. Greenway: asked the Secretary of State for Education and Science what response he has had to his statement on teachers' pay and conditions of employment.

Mr. Tim Smith: asked the Secretary of State for Education and Science what view head teachers have expressed to him on his proposals on teachers' pay.

Mr. Kenneth Baker: I am awaiting responses from those organisations which I am consulting about my proposals.

Mr. Greenway: Does my right hon. Friend agree that today's strong vote by the Assistant Masters and Mistresses Association against strikes contrasts with yesterday's strikes by other teacher unions? That underlines the disunity within the teaching profession. Surely the time has come for all strikes to end, in the interests of children, and for my right hon. Friend and all teachers' unions to produce a successor to the Burnham machinery for the discussion, as soon as possible, of teachers' pay and conditions and, above all, a strike-free deal.

Mr. Baker: I warmly welcome the fact that the third largest teachers' union, the AMMA, has voted today not to go on strike. This means that in the ballots which have been held fewer than half the teachers overall have voted for strike or other action. In my view, and I think that of most people, these strikes are totally unjustified. Parents

do not understand why teachers are causing disruption when what is proposed will mean a 25 per cent. pay increase over 18 months.

Mr. Speaker: Mr. Tim Smith.

Mr. Tim Smith: Is my right hon. Friend aware —[Interruption.]

Mr. Speaker: Order. I have called the hon. Member to speak from the side Gallery because he cannot find a seat on the Floor.

Mr. Smith: Is my right hon. Friend aware that Norman Willis has said that the two largest teachers' unions should merge and that their rivalry has done teachers no good? Might he not have added that their rivalry has done the children no good either and that the sooner they get back to work the better?

Mr. Baker: That is very good advice from on high. I should like to add my words to it. I very much hope that as a result of today's ballot those militant union leaders who are still calling out some of their members on strike will stop. The only people who suffer as a result of these strikes are the children. We should not take it out on the children.

Mr. Ashdown: As the Secretary of State well knows, the alliance does not believe that the teachers should be striking at the moment. Does he agree that that action will damage not only the children's education but the teachers' cause? Does the right hon. Gentleman realise that many people outside the House and, indeed, outside politics, recognise that his action in withdrawing without limit the rights to negotiate pay and conditions was a deliberately provocative act, so that he now bears the burden of the blame for some of the disruption which is going on in our schools?

Mr. Baker: The hon. Gentleman should appreciate that the Government introduced the interim advisory committee because the negotiating procedures had led nowhere over the past four years. I have provided a breathing space and a cooling-off period to determine more permanent satisfactory arrangements. I very much hope that all the unions will take advantage of this cooling-off period.

Mr. Mark Carlisle: I welcome AMMA's decision today. Will my right hon. Friend welcome the enormous increase in the membership of the Professional Association of Teachers, which, as a union committed not to strike, has increased its membership from 16,000 in 1980, when it was recognised, to 42,000 today? Will he take this opportunity to remind those who deplore the leadership of the NUT and the National Association of Schoolmasters that there is another strong union today?

Mr. Baker: My right hon. and learned Friend is absolutely right. The union which has grown most in the past few years is the Professional Association of Teachers, which is committed not to taking strike action. The other union which has also grown is AMMA, which today voted against striking. The union which has dropped in membership is the NUT, which is out on strike. I think that I speak for the whole House when I say that I very much hope that these disruptive strikes will come to an end. They are not justified.

Mr. Flannery: Is it not a fact that, whoever has voted not to come out on strike, three quarters of the teaching


profession have voted to do so? [Interruption.] That, despite all the attempts to shout me down, is the reality of what the Secretary of State has done to the education of our children by trying to get rid of a negotiating process which has existed for more than 100 years, and which has never been broken before, except by this tyrannical Government.

Mr. Baker: Not for the first time, the hon. Gentleman has got his figures all wrong. Fewer than half the teaching profession has voted to take strike action. Indeed, the response to the strike action was very patchy last week. In some counties, only 5 per cent. of the schools were closed. There were stronger responses in the cities and towns, but much less in the rural areas and in the primary schools. I hope that the hon. Gentleman will add his voice in his union to discourage further strike action.

Sir Hugh Rossi: Will my right hon. Friend say whether he has precluded the setting up of a new, balanced negotiating machinery at the end of the three-year transitional period?

Mr. Baker: I would emphasise to my hon. Friend that I have said that we now have a cooling-off period in order to determine more permanent and satisfactory arrangements. There are broadly two views, one moving to an independent review body, coupled with certain conditions—possibly a "no-strike" arrangement—or, alternatively some form of joint negotiation. We cannot return to the latter at the moment, because the unions are hopelessly divided. So a cooling-off period is needed.

Mr. Radice: We deeply regret the continued disruption in our schools. Nobody wants the teachers to be on strike, but is it not the case that when the Secretary of State removed teachers' bargaining rights and imposed his own plan he was taking a dangerous gamble—one that has not come off? Does he not understand that parents who have had to put up with at least two years' disruption are now expecting him to use the authority of his office to bring peace to our classrooms by hastening a return to collective bargaining?

Mr. Baker: The hon. Gentleman deplores the strike. Could he perhaps express that view to a prominent member of the Labour party and chairman of the Trades Union Congress, Mr. Fred Jarvis, and deplore the fact that these unions and their militant leaders are calling teachers out on strike? These strikes are harmful to the children. Those teachers who come out will not be forgiven. The proposals that I have put forward are of an interim nature. What we want is to move towards better, permanent arrangements.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Amess: asked the Prime Minister if she will list her official engagements for Tuesday 17 March.

The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be having further meetings later today. This evening I hope to have an audience of Her Majesty The Queen.

Mr. Amess: Is the Prime Minister aware that there will be widespread concern at yesterday's crime figures. which is why many people will welcome the tougher sentences contained in the Criminal Justice Bill currently before the House? Is she not saddened by the fact that, on certain provisions, particularly the clause that would have allowed for a review of lenient sentences, Opposition Members actually voted against them?

The Prime Minister: Yes, I agree with my hon. Friend. The crime figures published yesterday mean that we shall be even more determined in pursuing our policy to see that the police and the courts have the powers and resources that they need and to encourage people to take more steps to prevent crime. I agree with my hon. Friend that the attitude taken by the Opposition, both in local authorities and in this House, does nothing to help us fight crime.

Mr. Kinnock: Does the Prime Minister recall my previous request to her to provide people, especially old people, with help to make their homes secure, to provide for the improvement of housing and lighting schemes and seriously to combat unemployment as practical ways of assisting the police in their increasingly difficult task of preventing and detecting crime? In view of yesterday's truly shocking crime figures and of the 50 per cent. increase in crime since her Government came to office, will the Prime Minister now respond urgently and positively to those requests? Or does she take the same supine view as her Home Secretary, that the Government's anti-crime programme is simply taking time to work?

The Prime Minister: The right hon. Gentleman is aware that there is already help for older folk with crime prevention schemes. It is operated through the community programme scheme, and operated very well indeed. I welcome the desire for more neighbourhood watch schemes, which already number, I understand, nearly 20,000, are working well and are preventing crime in a number of areas.
I listened carefully to what the right hon. Gentleman said. May I remind him that a batch of Labour local authorities go out of their way to undermine the police and finance criticism of the police at public expense? Worse than that, official Labour party policy would put those very people into a position of control over the police under the plan by which police priorities would be settled by local authorities.

Mr. Kinnock: First, all that the right hon. Lady says about Labour party policy is absolute rubbish and completely untrue. Secondly, anyone of any political colour who seeks to impede the proper work of the police is being simply anti-social. No one should be permitted to fall down on his or her public responsibilities. Thirdly, although the various initiatives which the right hon. Lady listed are all worth while, most of them, sadly, are only worthy palliatives. When will the right hon. Lady take action to strike at the social and economic roots of crime, to give people, especially women and old people, proper protection and to take up the issue of recruitment in order to remove the administrative burden on the police, including that imposed by the Police and Criminal Evidence Act 1984 that keeps—[Interruption.]

Mr. Speaker: Order.

Mr. Kinnock: I thought that it would not be long before the Tory party gave up being concerned about crime.
I want the Prime Minister to tell us what she is going to do, in addition to those other things, to remove the administrative burden that keeps as many as 50 per cent. of our police officers off the streets and away from their first task.

The Prime Minister: I would have more respect for what the right hon. Gentleman has said if he had supported the Prevention of Terrorism Act. I would have more respect for what he has said if he had supported the proposal to refer lenient sentences to the Court of Appeal, and I would have had more respect if his party had supported us in voting for increased maximum penalties. He did none of those things. His party voted against all three.

Mr. Ward: Is my right hon. Friend aware that many of us would welcome the conversion of the Leader of the Opposition to the cause of law and order if he now demonstrated that he will persuade—[Interruption.]

Mr. Speaker: Order. The hon. Gentleman must relate his question to the Prime Minister's responsibilities.

Mr. Ward: Would not the cause of law and order be better served if my right hon. Friend would illustrate to us the importance of the loony Left not running down the police on every occasion, and of allowing the police to get on with their job instead of having to monitor processions run by such groups?

The Prime Minister: The activities of some Labour authorities in undermining the police are well known and I believe that until they are totally and utterly repudiated we must take them into account in viewing the way in which the Opposition propose to tackle crime.

Mr. Roy Jenkins: Will the Prime Minister — [Interruption.]

Mr. Speaker: Order.

Mr. Jenkins: Will the Prime Minister recall the question to the Attorney-General yesterday of the right hon. Member for Morley and Leeds, South (Mr. Rees), and will she accept that, speaking as the Home Secretary for most of the relevant period, I entirely endorse what he said? Is the right hon. Lady aware that it is now her clear duty to set up an inquiry into the activities of certain elements in the Security Service during the mid-1970s?

The Prime Minister: The Prime Minister of the day made a statement on that matter, and I have nothing to add to what he said.

Mr. Evennett: Will my right hon. Friend give a guarantee that, after she has won the next general election, she will look carefully at the existence of the Inner London education authority, with a view to reform or abolition?

The Prime Minister: The Local Government Act 1985 contains a power to review ILEA by 1991. We shall, of course, review its activities and its future.

Sir Russell Johnston: asked the Prime Minister if she will list her official engagements for Tuesday 17 March.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Sir Russell Johnston: Surely the crime statistics that have been referred to will lead the right hon. Lady to

reconsider her view that there is no relationship between unemployment and crime. Surely the huge increase in unemployment has had exactly such disastrous social consequences. Does she reject the old saying, which I dare say she heard at her father's knee, that the devil finds work for idle hands?

The Prime Minister: It is a sad fact that the peak age of offenders is 15 years, which is below the school-leaving age. It does not necessarily seem to support what the hon. Gentleman said. Academic research has suggested that there is no significant association between increases in recorded crime and increases in unemployment. I accept that, in general, the phrase that the hon. Gentleman used seems to be true, but it is not borne out by the research that we so far have. He will, of course, know that unemployment involved a much bigger proportion of the working population in the 1930s, but crime was nowhere near what it is today.

Mr. Holt: Will my right hon. Friend care to look at Hansard of three or four weeks ago, when Lord Mishcon, speaking from the Opposition Benches in the House of Lords on the subject of law and order, said that sentencing in this country was too long and too severe and that it should be shortened, as it is in Holland, where an armed robber would receive only four and a half years, as against 15 years in this country? Is that any way in which to combat crime?

The Prime Minister: We believe that it is the duty of the Government to see that sufficient maximum sentences are available to the courts in case they should be needed. We have therefore consistently looked at the maxima and increased them where necessary. For example, attempted rape now attracts a life sentence. In the Criminal Justice Bill, for carrying a firearm during the commission of a crime, even when not used, the sentence will be up to life. The last matter was, of course, opposed by the Labour Opposition.

Mr. Merlyn Rees: With regard to the answer that the Prime Minister gave the right hon. Member for Glasgow, Hillhead (Mr. Jenkins), why does the right hon. Lady keep calling in aid an inquiry of August 1977, the contents of which she cannot have seen, saying that the allegations that are currently made were investigated then, when they were not investigated then? Fresh allegations should be looked at. The more the Prime Minister calls in aid an inquiry, the contents of which she can know nothing about, the more she strengthens the case for an inquiry now.

The Prime Minister: The right hon. Gentleman is certainly referring to matters for which I am not, and cannot be, responsible. May I read once again the statement that the then Prime Minister made — [HON. MEMBERS: "No."] — to which I cannot possibly add. It was reported on 8 December 1977. The statement was made during the recess and was referred to in the House.
The Prime Minister has conducted detailed inquiries into the recent allegations about the Security Service and is satisfied that they do not constitute grounds for lack of confidence in the competence and impartiality of the Security Service or for instituting a special inquiry." — [Official Report, 8 December 1977; Vol. 940, c. 1645.]
That is what the Prime Minister of the day said. I can take no responsibility whatsoever for matters that happened before my time. The hon. Gentleman must take up those matters with the Prime Minister of the day.

Mr. Fairbairn: Does my right hon. Friend appreciate, I could say it in Latin, but I shall not, that the permissive society one generation on has turned out to be the criminal society?

The Prime Minister: My hon. and learned Friend makes his own point very effectively.

Mr. Winnick: asked the Prime Minister if she will list her official engagements for Tuesday 17 March.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Winnick: As the head of the Security Service, does the Prime Minister not recognise that if some dissident members of the Security Service in the 1970s tried to destabilise a Government whom they did not like, it strikes at the very heart of democracy? On reflection, therefore, does the Prime Minister not recognise, bearing in mind the answers that were given yesterday by the Attorney-General, that we cannot be satisfied with anything less than a full judicial inquiry about what happened during the time of a Labour Government?

The Prime Minister: The hon. Gentleman is concerned with something that did not happen in my time and about which the Prime Minister of the day made a clear statement. [Interruption.]

Mr. Speaker: Order. I ask the House to listen to the Prime Minister.

The Prime Minister: The Labour Prime Minister of the day made a clear statement about it. The hon. Gentleman must take up that matter with that Prime Minister.

Mr. Bell: On a point of order, Mr. Speaker. Earlier, the hon. Member for Poole (Mr. Ward) said that the Leader of the Opposition had been converted to the cause of law and order. I should like you to ask him to withdraw that phrase.

Mr. Speaker: Order. I do not think that it was unparliamentary, although it might have been rather offensive.

Mr. Ward: Further to that point of order, Mr. Speaker. I had not realised what a sensitive subject law and order is with the Opposition. In view of the embarrassment, of course I withdraw it.

NEW MEMBER

The following Member took and subscribed the Oath:

Matthew Owen John Taylor Esq., for Truro.

WAYS AND MEANS

Budget Statement

Mr. Deputy Speaker (Mr. Harold Walker): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that at the end of the Chancellor's speech, as in past years, copies of the Budget resolutions will not be handed around in the Chamber but will be available to hon. Members in the Vote Office.

The Chancellor of the Exchequer (Mr. Nigel Lawson): The setting for this year's Budget is more favourable than it has been for very many years. We are now entering our seventh successive year of steady growth, and the fifth in which this has been combined with low inflation. The public finances are sound and strong, and unemployment is falling. These are the fruits of the Government's determination, in bad times as well as good, to hold firmly to our policies of sound money and free markets. Once again, I reaffirm those policies.
I shall begin, as usual, by reviewing the economic background to the Budget. I shall then turn to monetary policy and to the fiscal outlook this year and next. Finally, I shall propose some changes in taxation designed to improve still further the prospects that lie before us. A number of press releases, filling out the details of my proposals, will be available from the Vote Office as soon as I have sat down.

THE ECONOMIC BACKGROUND

I start with the economic background. Nineteen eighty-six was dominated by the sudden collapse of the oil price. Our own economy was affected not only directly, as a major oil producer and exporter, but also by the pause in world growth as the world economy adjusted to what has been described as the third oil shock. Despite this dislocation, however, the economy has developed in most respects as I foreshadowed a year ago.
In 1986 as a whole output grew by a further 2½ per cent., or so, which compares well with the experience of other industrialised countries. It is worth recalling that during the 1960s, and again in the 1970s, Britain's growth rate was the lowest of all the major European economies. By contrast, during the 1980s, our growth rate has been the highest of all the major European economies.
This greatly improved growth performance has been accompanied by falling inflation, which at 3½ per cent. in 1986 reached the lowest figure for almost 20 years. Over the lifetime of this Parliament, inflation has averaged less than 5 per cent.
During the first half of last year, exports and hence output were affected by the pause in world growth to which I have already referred. But since the middle of the year exports have grown strongly. Indeed, over the last three months the volume of exports of manufactures was 6 per cent. higher than a year earlier — a better performance than that of any other major economy. This pattern was reflected in the rapid growth of manufacturing output in the second half of last year.
This resurgence of economic growth, coupled with the special measures we have taken, has brought about a welcome fall in the number of people out of work. Since

July unemployment has fallen by more than 100,000, the largest six-monthly fall since 1973. Though the numbers out of work are still far too high, both youth unemployment and long-term unemployment are now lower than they were a year ago.
I announced a number of specific employment measures in my last Budget, and since then my right hon. and noble Friend the Secretary of State for Employment has further extended the restart programme for the long-term unemployed. There will also be more places on the enterprise allowance scheme, and the number of jobclubs is to be quadrupled. The new job training scheme will eventually give a quarter of a million people, most of them youngsters, vocational training leading to recognised qualifications. With these and other measures, this Government have developed their employment and training programmes on a scale which no other country can match. But the best hope of all for the unemployed is in the continued vigour of the economy.
Since the early months of last year, there has been a further surge in manufacturing productivity. This continues the remarkable improvement in productivity growth achieved by British industry throughout the 1980s. During the 1960s, and again in the 1970s, growth in manufacturing productivity in the United Kingdom was the lowest of all the seven major industrial countries in the world. During the 1980s, our annual rate of growth of output per head in manufacturing has been the highest of all the seven major industrial countries.
The recorded current account of the balance of payments went into deficit in 1986 by around £1 billion. This followed a cumulative current account surplus of some £20 billion between 1979 and 1985. Some deterioration in our current account was inevitable in the face of a £4 billion loss of earnings on oil trade virtually overnight. But the significance of this should not be exaggerated. The exchange rate adjustment that followed the fall in the oil price is already contributing to an improved non-oil trade performance. And earnings from the massive stock of net overseas assets we have acquired since 1979 will provide a continuing support to the current account in the years ahead. At well over £100 billion, our net overseas assets are now greater than at any time since the war, and second only to those of Japan.
Looking ahead, I expect 1987 to be another year of balanced growth with low inflation. Total output is forecast to rise by 3 per cent., with exports and investment up by rather more than that. By then we will have registered the longest period of steady growth, at a rate approaching 3 per cent. a year, that the British economy has known since the war. Manufacturing industry, in particular, should do well in 1987. and with the non-oil economy set to grow at 3½ per cent., there is every prospect of unemployment continuing to fall throughout the year.
In last year's Budget speech I said that the outlook for jobs depended on a sustained improvement in the performance of business and industry. That sustained improvement in economic performance is now well under way.
Despite the strong growth in exports, it will inevitably take time for the full effect of the exchange rate adjustment to work through. The current account is thus likely to remain in deficit this year, by some £2½ billion, around half of 1 per cent. of GDP.
As I foreshadowed in the autumn statement, inflation may continue to edge up for a time, perhaps exceeding 4½


per cent. by the summer, before falling back to 4 per cent. by the end of the year. While short-term fluctuations are inescapable, it remains the Government's prime objective to keep inflation on an underlying downward trend.
Given the continuation of present policies in this country, the biggest risk to the excellent prospect I have outlined is that of a downturn in the world economy as a whole. There are still serious imbalances afflicting the three major economies—the United States, on the one hand, and Japan and Germany on the other—which, if not handled properly, could lead to a simultaneous downturn in all three. And this in turn could be exaggerated by renewed turmoil in the foreign exchange markets, whose tendency to overshoot is as notorious as it is damaging.
It was to address these dangers that the Finance Ministers and central bank governors of six major nations met in Paris last month, and agreed among other things to co-operate closely in fostering a period of exchange rate stability. In my Budget speech last year, I said:
Provided we are not over-ambitious, I believe that the Plaza accord is something we can usefully build on."—[Official Report, 18 March 1986; Vol. 94, c. 167.]
That is what we have now done, with Plaza II. But it would be idle to deny that the wider risks still remain.
Short of a world downturn, which can and must be avoided, British industry now has an outstanding opportunity, with growing markets at home and overseas, low inflation, rapidly growing productivity and greatly improved profitability. Provided it can control its costs and maintain its present competitive advantage, and assuming the continuation of present policies, we can look forward to many more years of strong growth combined with low inflation.

MONETARY POLICY

For their part, the Government will keep in place a sound and prudent financial framework. That means, as it has done since 1980, the medium-term financial strategy. The central objective of the MTFS is gradually to reduce the growth of money GDP over the medium term so as to squeeze inflation out of the system and ultimately to achieve price stability. This requires monetary discipline buttressed by low public sector borrowing. The essential instrument of monetary policy must remain short-term interest rates. These will continue to be set in the light of monetary conditions as indicated principally by the growth of narrow and broad money and the behaviour of the exchange rate.
For narrow money, MO, the target range for next year will be 2 to 6 per cent. as foreshadowed in last year's MTFS. For broad money, however, as the Governor of the Bank of England cogently argued in his Loughborough lecture last October, it is probably wiser in current circumstances to eschew an explicit target altogether. But broad money will continue to be taken into account in assessing monetary conditions, as of course will the exchange rate.

PUBLIC SECTOR BORROWING

I mentioned a moment ago the need to keep public sector borrowing low.
The final outturn for the public sector borrowing requirement last year, 1985–86, was just under £6 billion, equivalent to 1½ per cent. of GDP, the lowest level since 1970–71. In my Budget last year, faced with a massive loss

of what now looks to be almost £7 billion of North sea oil revenue, I none the less decided to hold the PSBR for this year, 1986–87, to £7 billion, or 1¾ per cent. of GDP.
In the event, this year's PSBR looks like turning out at only £4 billion, or 1 per cent. of GDP — the second successive year of significant undershoot. This successful outcome is chiefly attributable to the remarkable buoyancy of non-oil tax revenues in general and of the corporation tax paid by an increasingly profitable business sector in particular.
Looking ahead, there is still a degree of uncertainty surrounding oil prices, and I have therefore stuck to the assumption I made last year that the North sea oil price will average $15 a barrel. But is clear that the increased flow of non-oil tax revenues, coupled with the prospective further growth of the economy in excess of the growth of public expenditure, puts the public finances in a very strong position. I intend to keep it that way.
Last year's MTFS indicated a PSBR for 1987–88 of £7 billion, or 1¾ per cent. of GDP; and, as the House will recall, I gave an assurance at the time of the autumn statement, when I announced a £4¾ billion increase in planned public expenditure in 1987–88, that on no account would I exceed that figure.
Indeed, I believe it is right to go below it. Since its inception in 1980, the MTFS has indicated a steadily declining path for the PSBR expressed as a percentage of GDP. We have now reached what I judge to he its appropriate destination — a PSBR of 1 per cent. of GDP. My aim will be to keep it there over the years ahead. This will maintain a degree of fiscal prudence that, until this year, had been achieved on only two occasions since 1950.
Accordingly, I have decided to provide for a PSBR in 1987–88 of £4 billion.
Inevitably, this greatly diminishes the scope I have this year for reducing the burden of taxation, which of course remains a major objective of Government policy. But I am sure it is right to err on the side of prudence and caution, and to build a still firmer base for the future. That is the principle on which both I and my predecessor have consistently conducted economic policy these past eight years, and I see no reason to depart from it now.
Meanwhile, I would make one further observation, of a different nature. Economic arguments are seldom concluded, one way or another. This is chiefly because it is unusual for economic policies to be held in place long enough to provide sufficient evidence. But the 1980s have been different; and, as a result, one critically important economic argument has now been concluded, finally and decisively.
Throughout our period of office, our critics have consistently maintained not only that a fiscal stimulus would produce real economic growth but that without an expansionary fiscal policy sustained growth was impossible. They were wrong, and have been proved wrong. The British economy is now embarking on its seventh successive year of steady growth, at an average rate of getting on for 3 per cent. a year. And during that time the PSBR, even if privatisation proceeds are added back, has been deliberately and steadily reduced from a shade under 6 per cent. of GDP to a little over 2 per cent. Indeed, had I or my predecessor at any time heeded the advice of our so-called expansionist critics, the British economy would never have been in the unprecedentedly favourable position it is in today.

EXCHANGE CONTROL

Before I turn to my proposals for changes in taxation, I have one other change of a specific nature to announce. In 1979, a few months after the present Government had first taken office, my predecessor announced the abolition of exchange controls, which had been in continuous operation ever since the outbreak of war in 1939. That bold action has, over the past seven and a half years, proved wholly beneficial to the British economy; and I am glad to note that other European countries are now moving in the same direction.
But the Exchange Control Act remains on the statute book. The time has come to repeal it. The necessary legislation will be contained in this year's Finance Bill.
I note that, in what was clearly intended to be a major speech in New York in September, the Deputy Leader of the Labour party declared that
The Labour Party has no intention of reintroducing statutory exchange controls".
I am confident, therefore, that the proposal I have just made will be welcomed on all sides of the House.

BUSINESS AND ENTERPRISE

I now turn to taxation. First, taxes on business.
The fundamental reform of the corporation tax system which I introduced in 1984 came fully into effect last April. The new system has undoubtedly improved the quality of business investment decisions in Britain, and is also encouraging more overseas companies to set up here.
During the transition to the new system, companies were given advance notice of the main rate of corporation tax for the year ahead. This helped them in their forward planning, and I intend as far as possible to continue the practice of setting the rate in advance.
Accordingly, I can announce now that the main rate of corporation tax in 1987–88 will be unchanged at 35 per cent.—lower than in any other major industrial nation, though the United States is now set to emulate us.
The low rate of corporation tax enables me to introduce a further simplification into the system.
At present, while companies' capital gains are liable to corporation tax, the amount of such gains is first adjusted by a certain fraction so that the effective rate of tax is the same as that on capital gains made by individuals. This dates back to the time when the two rates of tax were far apart.
This is no longer the case. Indeed, the corporation tax rate for small companies is now below the capital gains tax rate. I therefore propose that, from today, companies' capital gains be charged at the appropriate corporation tax rate, without adjustment, save for the indexation which applies to all post-1982 gains.
Hitherto, companies have not been allowed to set payments of advance corporation tax against their liability to tax on capital gains. This means that, where companies distribute capital gains as dividends, the gains are, in effect, taxed twice—once in the hands of the company, and once in the hands of the shareholder. I propose that, under the new system, companies should be able to set ACT payments against tax on capital gains.
Taken together, these changes should yield £60 million in 1988–89.
I also have some further simplification and rationalisation of the corporation tax system to announce.
At present, some companies established before 1965 do not have to pay their corporation tax until up to 21 months

after the end of the period for which it is due, whereas companies established since 1965 have to pay their tax after nine months—and indeed some building societies have to pay sooner still. This difference in treatment cannot be justified. Moreover, it is open to an abuse which could put the timing of a substantial proportion of the total corporation tax yield at risk.
I therefore propose that all companies and building societies should be treated the same way, with all liable to pay tax nine months after the accounting period for which it is due.
While business and industry as a whole are doing well, the North sea oil sector has inevitably been hard hit by last year's oil price collapse. My right hon. Friend the Secretary of State for Energy and I have followed closely the effects on North sea producers and their suppliers. The industry itself is generally confident about the longer-term prospects; while, as for the tax system, not only is it inherently price-sensitive, but the companies themselves have repeatedly stressed their desire for stability.
However, in the light of the immediate problems, I introduced legislation last autumn to bring forward the repayment of over £300 million of advance petroleum revenue tax. This has already helped many of the smaller and medium-sized companies faced with cash flow difficulties.
I now propose two further petroleum revenue tax reliefs. First, as from today, companies may elect to have up to 10 per cent. of the costs of developing certain new fields set against their petroleum revenue tax liabilities in existing fields, until such time as the income of those new fields exceeds the costs incurred. Second, there will be a new relief against PRT for spending on research into United Kingdom oil extraction that is not related to any particular field.
I believe that these carefully targeted changes will give a worthwhile measure of relief to the North sea oil sector.
Last year I put the business expansion scheme on to a permanent footing. However, the present rules still produce too much end-year bunching of BES investments, and hence may crowd out some projects and lead to bad decisions on others. I propose, therefore, to permit someone who invests in the first half of the year to claim part of the relief against his previous year's income. This will make it easier for companies to raise BES finance throughout the year.
I also propose to legislate now to pave the way for a new method of collecting corporation tax, to be known as pay and file. Under this system companies will estimate their tax liabilities themselves, and pay on the normal due date. Where it turns out that the initial payment was too low, the company will pay interest to the Revenue; where the initial payment was too high, the Revenue will pay interest to the company. This new approach, which has already been generally welcomed by the business community, is part of a wider programme of streamlining tax collection, and will not come into force until the early 1990s.
I have to set the 1988–89 car and fuel benefit scales for those with company cars. The car scale charges still fall well short of the true value of the benefit, and, as last year, I propose to increase them by 10 per cent. There will be no change in the fuel scales which, as already announced, will also be used for VAT purposes from 6 April. [Interruption.]


Training and retraining are vital to a flexible and competitive economy. At present — training [Interruption.] If right hon. and hon. Members are not interested in training, they show themselves to be a fraud, which we know them to be.

Mr. Willie W. Hamilton: On a point of order, Mr. Deputy Speaker. The Chancellor's Parliamentary Private Secretary, obviously, has some amended version of the speech which he has received from a civil servant in the Box. Would you now suspend the sitting until the Chancellor is properly equipped with the new speech?

Mr. Deputy Speaker: Order. The hon. Gentleman knows perhaps better than any other hon. Member that, according to convention, the Chancellor is listened to without interruption. The hon. Gentleman also knows that what happens behind the Chair is not part of our proceedings.

Mr. Lawson: Training and retraining are vital to a flexible and competitive economy. At present, training financed by an employer that is related to the employee's current job is allowable against tax for the employer and imposes no tax burden on the employee. But an employer who is willing to finance the retraining of workers for future employment elsewhere may find that the cost of this is not allowable against tax, and the employee may find that he has received a taxable benefit. I propose to remove both these obstacles. This should help more workers to acquire new skills for new jobs.
The past few years have seen a remarkable and welcome growth in the number of small businesses and the self-employed. The Government have done a great deal to lighten the burdens on this vitally important sector of the economy. But I am well aware that problems remain, not least in the field of VAT.
Accordingly, I asked Customs and Excise to issue a consultative document last autumn canvassing a number of changes. In the light of the responses to that document, I have four proposals to make.
Perhaps the biggest problem faced by the small business man today is the trade customer who is late in paying his bills: so late sometimes that VAT becomes due before the bill has been paid. I can do nothing about late payment; but I can, I hope do something about the VAT problem.
My first and most important proposal, therefore, is that, as from 1 October, businesses whose annual turnover is under £¼ million, which covers more than half of all traders registered for VAT, will be able to choose to account for VAT on the basis of cash paid and received. In other words, they will have no liability to pay VAT until they themselves have received the money from their customers. In addition to easing the cash flow problems caused by late payers, this system will, of course, provide automatic VAT relief on bad debts.
I have to warn the House, however, that I cannot legally introduce this change without first obtaining a derogation from the European Community's sixth VAT directive. I am applying for the necessary derogation today. The House will note that the upper limit of £¼ million is considerably greater than the £100,000 suggested in the consultative document.
Second, I propose to give these businesses the option of accounting for VAT on an annual basis. Instead of making quarterly returns, they would make regular

payments on account, and then file a single return at the end of the year. This option, which offers considerable streamlining, will be available next year.
Third, the period within which business must apply to be registered for VAT will be extended from 10 to 30 days.
Fourth, there will be changes to the rules for the special VAT schemes for retailers, and more small and medium-sized businesses will be able to make use of the simpler schemes.
I believe that the changes I have outlined, and in particular the option to move to cash accounting, will be widely welcomed by the small business community. The cost will be £115 million in 1987–88 and £60 million in 1988–89.
In addition, I propose to increase the VAT threshold to £21,300, to keep it at the maximum permitted under existing European Community law.
In the light of the responses to the consultative document, I shall not be going ahead either with the withdrawal of the so-called standard method by which retailers calculate their gross takings for VAT, or with the compulsory deregistration of traders below the VAT threshold.
I have one further measure to help the small business man, unrelated to VAT. I propose to increase the limit for capital gains tax retirement relief by 25 per cent. from £100,000 to £125,000.
In any ongoing programme of tax reduction and reform, where much still remains to be done, an essential element must always be the elimination of unintended or unjustified tax breaks, which cause rates of tax generally to be higher than they need to be. Accordingly, I have five proposals to make today to that end.
The first concerns VAT, and has already been the subject of extensive consultation. The House will be aware that a business that provides a service that is exempt from VAT cannot in turn deduct input tax on its purchases. But where the activities of a business are in part liable to VAT and in part exempt the existing rules are excessively generous as to the amount of input tax that can he deducted; and this generosity is being exploited on a growing scale.
The rules must therefore be changed, and the changes, which I proposed to the House last December, will come into effect on 1 April.
There will be special arrangements to deal with the problem of brewers' tied houses.
I am also taking this opportunity to exclude a significant number of small businesses from the scope of this provision. The yield from this change will be some £300 million in 1987–88 and £400 million in 1988–89.
Second, I propose to change the law so that companies in multinational groups which enjoy dual residence will no longer be able to secure tax relief twice on one and the same interest payment. Genuine trading companies will not be affected. This change, which will take effect on I April, follows the similar action recently taken by the United States. It will yield £125 million in 1988–89.
Third, I propose to end the present excessively generous treatment of tax credit relief for foreign withholding tax paid on interest on bank loans. In future, banks will be able to offset this tax credit only against tax on the profit on the relevant loan, and not more widely. This will bring our rules broadly into line with those in most other countries.
The change will apply from 1 April this year for new loans and from 1 April next year for existing loans. It will yield some £20 million in 1988–89.
Fourth, the tax treatment of Lloyd's syndicates as it applies to the reinsurance to close system is clearly unsatisfactory. I therefore propose to bring it into line with that of provisions for outstanding liabilities made by ordinary insurance companies and, indeed, of comparable provisions made by other financial traders. I have asked the Inland Revenue to consult urgently with Lloyd's about the details of the legislation. The new rules will first apply to premiums payable for the Lloyd's account which closes on 31 December this year.
Fifth, I propose to implement the Keith committee's recommendations that interest should be charged in the limited number of cases where an employer does not apply PAYE properly and a formal assessment has to be made to recover the tax. This change will take effect from April next year, and the yield in 1988–89 is estimated at £45 million.
I have one further proposal to make in the broad field of business and tax.
In my Budget last year I suggested the possibility of introducing a measure of tax relief for profit-related pay.
I pointed then to two considerable advantages that might be expected to flow from arrangements which relate pay to profits. First, the work force would have a more direct personal interest in the profits earned by the firm or unit in which they work; and, second, there would be a greater degree of pay flexibility in the face of changing market conditions. Such flexibility is vital if, as a nation, we are to defeat the scourge of unemployment.
Last July I presented a Green Paper on profit-related pay in conjunction with my right hon. and noble Friend the Secretary of State for Employment and my right hon. Friend the Secretary of State for Trade and Industry. I now propose to introduce a scheme of tax relief broadly along the lines floated in the Green Paper.
My proposals depart from those in the Green Paper in one important respect. I am doubling the proportion of an employee's profit-related pay that will be tax free from a quarter to a half, and I am also increasing the upper limits on the relief. For a married man on average earnings receiving 5 per cent. of his pay in profit-related form, the tax relief will be equivalent to a penny off the basic rate of income tax. The cost will inevitably depend on take-up. It could be £50 million in 1988–89, building up to substantially more than that, as take-up grows. and as the proportion of an employees's pay which is profit-related rises.
Profit-related pay is no panacea. But then there are no panaceas. What it is is a tool to help British business gradually to overcome one of our biggest national handicaps — the nature and behaviour of our labour market. I am today challenging British management to take advantage of that tool and to make good use of it, for the good of their firm, their work force and their country.

TAXES ON SAVING

I turn now to the taxation of savings.
A central theme and purpose of the Government's policies is the creation of a genuine popular capitalism.
That means wider home ownership, wider share ownership, and wider pension ownership. Over the past

eight years, the Government have actively promoted the first two, and have now embarked on the third: home ownership, above all through the council tenant's right to buy; and share ownership, through the rapid growth of employee share schemes, through the massively successful privatisation programme, where Britain has led the world, and most recently through the new personal equity plans, which I announced in last year's Budget and which started up on 1 January this year. In the first month of the scheme, more than 2,000 people a day took out personal equity plans, many of them first-time investors, as I had hoped.
We know that 63 per cent. of households now own their own homes, 2½ million more than in 1979. However, there have been no official figures for the more explosive growth of share ownership in Britain over the past eight years. The treasury and the Stock Exchange therefore jointly commissioned a major independent survey of individual shareholding in Britain.
The results are now available. They show that there are now some 84½ million individual shareholders in this country, amounting to one fifth of the total adult population, and roughly three times the number there were in 1979.

Mr. Eric S. Heifer: So what?

Mr. Lawson: The hon. Gentleman may learn.
Then there is wider pension ownership. Two years ago, the Government embarked on a major strategy to extend the coverage of private pension provision and to give individuals far more flexibility and choice in the way they provide for their retirement. We have already introduced a number of important new measures to that end, and the tax changes I am announcing today will complete the picture.
The cornerstone of the Government's pensions strategy is the introduction of an entirely new means of provision for retirement, developed by my right hon. Friend the Secretary of State for Social Services. This is the personal pension, which will be launched at the beginning of next year, three months earlier than planned.
Personal pensions are an important new dimension of ownership. They will enable employees—if they so wish -to opt out of their employers' schemes and make their own arrangements, tailored to fit their own circumstances. And they will provide a new opportunity for the 10 million employees who at present do not belong to an occupational scheme to make provision of their own and, if they so wish, to contract out of SERPS.
In my Budget last year I undertook to bring forward proposals to give personal pensions the same favourable tax treatment as is currently enjoyed by retirement annuities. These were duly published in a consultative document last November, and the necessary legislation will be contained in this year's Finance Bill.
In addition, to encourage a wider spread of occupational schemes, employers will be able to set up simplified schemes with the minimum of red tape. This will be particularly welcome to many small employers who have been discouraged by the complexity and open-ended commitment of a full-blown final salary scheme. And there will be much greater scope for transferring between different types of pension scheme. Again, the Finance Bill will contain the necessary tax provisions.
Finally I have decided to go beyond the proposals set out in the consultative document in one important respect.


Starting in October, I propose to allow members of occupational pension schemes to make additional voluntary contributions, with full tax relief, to a separate plan of their own choice instead of, as now, being restricted to plans within their employers' schemes. They will be able to top their pensions up to the present tax approval limits.
The proposals I have outlined — along with the measures my right hon. Friend has already taken—will make it easier for people to take their pensions with them when they change jobs, which will be good both for labour mobility and for independence. They will widen the range of choices people can make about their pensions and will mean that in future individuals will have much more control over the way in which their own pension contributions are invested.
Taken as a whole, the changes we have made in the last two years have brought about a radical transformation in the ways people can provide for their retirement. There are new options for employers and much greater freedom for individuals to plan their own pensions. This will lead to a further major extension of ownership, as people start to take advantage of the new opportunities.
But the generous tax treatment of pensions can be justified only if it is not abused. I propose, therefore, to introduce some limited changes to the present rules to restrict the excessive relief which can be obtained in some circumstances, particularly by a few very highly paid people. These will include a stricter definition of final salary and, for all arrangements entered into from today, an upper limit of £150,000 on the maximum permissible tax-free lump sum, coupled with more rigorous rules on how pension and lump sum benefits can be calculated.
The cost of the overall pensions package will inevitably depend on take-up, but with that proviso is estimated at £65 million in 1988–89.
For friendly societies, I have decided to replace the existing tax-exempt life assurance limit based on the sum assured with a new limit based on annual premiums. I propose to set this at £100 a year, which will greatly increase the scope for the traditional societies to offer life policies to their members.
The tax-exempt limits governing sickness and accident benefits which trade unions provide for their members have not been changed since 1982. With effect from today, I propose to increase them to £3,000 for lump sums and £625 for annuities.
Finally, in this section, I turn to inheritance tax. In my Budget last year I abolished the pernicious capital transfer tax on lifetime gifts between individuals, which was particularly damaging to the ownership and health of family businesses. This year I propose to extend the same exemption from tax, on similar terms, to gifts involving settled property where there is an interest in possession. This will not, however, apply to discretionary trusts. These changes will be of particular benefit to family businesses and to heritage properties, both of which are often held in trust.
I also propose to make two minor changes affecting business assets. First, holdings in companies quoted on the unlisted securities market will henceforth be treated for inheritance tax purposes in precisely the same way as holdings in companies with a full Stock Exchange listing. Second, business relief for minority holdings in excess of 25 per cent. in unquoted companies will be increased from 30 per cent. to 50 per cent. The purpose of both these

changes is to concentrate business relief more accurately on those assets which could provide funds to pay the tax only at the risk of damaging the business.
The abolition of the tax on lifetime giving was of the first importance to family businesses. but I remain conscious that it did little to help the smallest taxable estates, where the family home is often the principal asset.
I therefore propose to make a substantial increase in the threshold for inheritance tax, from £71,000 to £90,000, coupled with a simplification of the rate structure from seven rates to four. As a result of this change, the number of estates liable to inheritance tax will be cut by roughly a third. The cost will be £75 million in 1987–88 and £170 million in 1988–89.
Despite this substantial relief, however, and all the other much-needed reliefs that my predecessor and I have introduced since 1979, the House may be interested to learn that the expected yield of inheritance tax in 1987–88, at over £1 billion, is three times the yield of capital transfer tax in 1978–79, an increase in real terms of almost 50 per cent.

TAXES ON SPENDING

I now turn to the taxation of spending.
I have already announced some important changes in value added tax to prevent avoidance and to help the small business man. I have no other proposals for major changes in VAT this year.
However, in the light of representations I have received, I have decided to extend slightly the VAT reliefs I introduced last year for certain aspects of charitable work. I propose to relieve charities from VAT on certain welfare vehicles used by hospices to transport the terminally ill; on installing or adapting lavatory or bathroon facilities in charity homes for the disabled; on drugs and chemicals used by a charity in medical research; and on specialised location and indentification equipment employed by mountain rescue and first aid services.
While on the subject of charitable giving, I should remind the House that this year's Finance Bill will increase the limit on donations to charity under the new payroll giving scheme, which starts next month, from £100 to £120 a year.
Next, the excise duties. I propose to maintain the revenue from the taxation of gambling but to make some readjustment within the total. I therefore propose to increase the gaming machine licence duty by about a. quarter, which will restore it in real terms to its 1982 level, when it was last increased; and to offset this by abolishing. from 29 March, the tax on on-course betting. I am sure that this measure will be welcomed by the racing and bloodstock industry, as well as consoling those hon. Members who have complained to me about the clash this year between Budget day and the Champion Hurdle.
In my Budget Statement last year I undertook to introduce a tax differential in favour of unleaded petrol, to offset its higher production cost. I can now announce that the differential will be 5p a gallon. This means that the pump price of unleaded petrol should be no higher than that of four-star leaded petrol. The change will take effect from 6 o'clock this evening.
In my 1985 Budget I announced the first stage in the process of increasing the rates of vehicle excise duty on farmers' heavy lorries to bring them into line with the use they make of the public roads. I introduced the second


stage in last year's Budget and propose to complete the process this year. I also propose to increase the rates of duty on trade licences and to rationalise the taxation of recovery vehicles.
I have no further changes to propose this year in the rates of excise duty.

INCOME TAX

Finally, I turn to income tax.
There is now a worldwide consensus on the economic desirability of tax reform and tax reduction, and in particular the reduction of income tax. This was demonstrated most recently by the various national policy declarations that emerged from last month's meeting of Finance Ministers from the major industrial nations.
Lower rates of tax sharpen up incentives and stimulate enterprise, which in turn is the only route to better economic performance. And it is only by improving our economic performance that we will be able to afford to spend more on public services; and only by improving our economic performance that we will be able to create jobs on the scale that we all want to see.
That is why, ever since we first took office in 1979, we have consistently sought to reduce the burden of income tax. We have cut the basic rate of tax from 33 per cent. to 29 per cent. and sharply reduced the punitive higher rates we inherited from the Labour party. And we have increased the main tax allowances by 22 per cent. more than inflation, taking almost 1½ million people out of income tax altogether.
For 1987–88 I propose to raise all the main thresholds and allowances by the statutory indexation factor of 3·7 per cent., rounded up. Thus the single person's allowance will rise by £90 to £2,425 and the married man's allowance by £140 to £3,795. The single age allowance will rise by £110 to £2,960 and the married age allowance by £170 to £4,675. The age allowance income limit becomes £9,800. I propose to raise the first 40 per cent. higher rate threshold by £700 to £17,900, in line with statutory indexation; but the threshold for the 45 per cent. rate will go up by only £200 to £20,400. The other higher rate thresholds will remain unchanged.
I have two other changes in allowances to announce.
First, I propose to give an additional increase in the age allowance for those aged 80 or over. For them, the increase will be double the amount due under statutory indexation so that, for the very elderly, the single age allowance will rise by £220 to £3,070 and the married age allowance by £340 to £4,845. Around 400,000 taxpayers will benefit from this new measure, and up to 25,000 of them will be taken out of income tax altogether.
Second, the blind person's allowance has remained unchanged since 1981, when it was increased by £180 to its present level of £360. For 1987–88 I propose to increase it by a further £180, to £540.
Finally, I turn to the basic rate of income tax. This is the starting rate of income tax for everyone and the marginal rate for the overwhelming majority of taxpayers.
In my Budget speech last year I reaffirmed the aim set out by my predecessor in 1979, to reduce the basic rate of income tax to no more than 25 per cent. That remains my firm objective.
However, given my decision to use the greater part of the fiscal scope I now have to reduce the public sector borrowing requirement, that goal cannot be achieved in this Budget.
I can, however, take a further step towards it, as I did last year. I am therefore reducing the basic rate of income tax by 2p to 27 per cent. This reduction, which will benefit every taxpayer in the land, will be worth more than £3 a week to a man on average earnings.
There will, of course, be a consequential reduction in the rate of advance corporation tax, and—as last year—I also propose a corresponding cut in the small companies' rate of corporation tax from 29 per cent. to 27 per cent.
Taken together with the income tax change, this will mean a significant reduction in the tax burden on small businesses, which are so important for future growth and jobs.
The income tax changes I have just announced will take effect under PAYE on the first pay day after 17 May. They will cost a little more than £2 billion in 1987–88 over and above the cost of statutory indexation.
The total cost of all the measures in this year's Budget again on an indexed basis, is a little over £2½billion.

CONCLUSION

In this Budget I have reaffirmed the prudent policies which, despite a year-long coal strike followed by a collapse in the oil price, have given us the strongest economy we have known since the war.
After an autumn statement which substantially increased public spending in priority areas, I have once again cut the basic rate of income tax: a cut which the Labour party is pledged to reverse, if it is given the chance — which it will not be. And I have done this while sharply reducing public borrowing—a combination that has eluded successive Governments for decades.
This is a Budget built on success, and a Budget for success. I commend it to the House.

PROVISIONAL COLLECTION OF TAXES

Motion made, and Question,
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:

(a) Unleaded petrol (Motion No. 2); and
(b) Vehicles excise duty (farmers' goods vehicles) (Motion No. 3—[Mr. Lawson.]

put forthwith, pursuant to Standing Order No. 50 (Ways and Means Motions), and agreed to.

Mr. Deputy Speaker: I shall now call the Chancellor of the Exchequer to move the motion entitled "Amendment of the law". It is on that motion that the Budget debate will take place today and on succeeding days. The remaining motions will not be put until the end of the Budget debate next week, and they will then be decided without debate.

Budget Resolutions and Economic Situation

AMENDMENT OF THE LAW

Motion made, and Question proposed,
That it is expedient to amend the law with respect to the national debt and public revenue and to make further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting any supply;
(b) for refunding any amount of tax;
(c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
(d) for relief other than relief applying to goods of whatever description or services of whatever description—[Mr. Lawson.]

[Relevant documents: European Community Document No. 10155/86, Annual Economic Report 1986–87 and the unnumbered document, Annual Economic Report 1986–87 (final version as adopted by the Council).]

Mr. Neil Kinnock: May I begin with the usual facilities and congratulate — [HON. MEMBERS: "Felicities."]—the usual facilities of offering the usual felicities and congratulate the Chancellor of the Exchequer on his Budget speech and, indeed, on yet another record-breaking short speech? I am sure that hon. Members on both sides of the House will have reason to be grateful for the fact that he was economical with his words—I use the term in its very best sense-and that he was able to produce such a remarkable anticlimax towards the end which, for those of us with a poetic turn of mind, will be all the more gratifying. The Chancellor may have lost his place in the speech, but with this Budget he has lost his place in history as well.
The Budget is, as we and almost everyone else anticipated, a bribes Budget. It is a Budget that almost entirely ignores the national need for efficiency in the production of wealth and the national demand for fairness in the distribution of wealth. It is a Budget that has little to do with the general good, and everything to do with the general election.
The approach of the Budget to the problems of this country starkly defines the difference between the values and priorities of Her Majesty's Government and the values and priorities of the British people as they express them whenever they are asked. Those priorities are to fight unemployment, to help the old, to help the weak and to reunite the country. Those priorities are held all over the country, except on the Government Front Bench.
The Government have chosen a Budget that produces a short-term consumption spurt, but we and the British people want long-term investment to build up foundations for future strength. The Government choose across-the-board cuts in taxes. We and the British people want across-the-nation cuts in unemployment, but the Chancellor, in his Budget, has again done absolutely nothing to mount any form of serious attack on the 3 million level of unemployment in this country. All that he has done is to continue with the Government's efforts to beautify the figures of unemployment, while doing nothing to deal with the facts of unemployment.
There are elements in the right hon. Gentleman's speech with which we concur. I select particularly the

simplification and improvement of the business expansion scheme, and also the corporation tax changes, which appear, certainly at first sight, to be welcome, if with some necessary minor reforms. The improvements in taxation incentives to encourage training are all the more welcome. Indeed, the right hon. Gentleman might have felt disposed to go further than that, given the very sad and inadequate record of investment in training, which is all too typical in this country.
Changes in the system of payment and in the administration of VAT for small businesses is particularly welcome. I think that this will be greeted on both sides of the House, but I must say to the right hon. Gentleman that many people who have small businesses — the vast majority of whom are entirely reputable—will want him to ensure that there will not be an abuse of those changes, which would inflict disadvantages upon honest traders and small producers.
The reliefs on the VAT liabilities of charities are naturally welcome and, indeed, as the Chancellor will be aware, they have been pressed for by hon. Members on both sides of the House. The subsidies to ensure against different and disadvantaged prices for non-leaded oil are also welcome. We commend all these measures and give an easy passage to them, although, naturally, the detail of them must be explored in the appropriate way.
The Chancellor took it upon himself in the Budget to make a drum-banging announcement about the abolition of the Exchange Control Act 1947. I think that that is unlikely to be resisted, as it is a somewhat academic, even otiose, exercise at the present juncture. Indeed, the incoming Labour Government have a much better system for encouraging the return of much needed capital investment. [Interruption.] The repatriation scheme that we propose and will implement has received accolades from many independent observers who consider that the advantages that it will afford to those who move money will provide us with ready and plentiful resources to stimulate just the kind of investment that this country desperately needs. Much of such investment has been lost as a consequence of the huge increase in the outflow of capital investment since the Prime Minister and her colleagues removed capital exchange controls at the beginning of their period of office. This represents a loss in our already under-invested country of about £70 billion net in the past eight years.
The Chancellor has claimed that investment decisions have improved since he made his changes in 1984. He must explain how those investment decisions manifest such an improvement when this year the level of investment in manufacturing in Britain is 20 per cent. lower than it was in 1979 when the Government came into office.
As we listened to the Chancellor today, many of us, on both sides of the House, must have felt a certain familiarity with his Tory themes and the tactics that he is plainly seeking to implement. We recall the dilation of the economy before the election of 1983 and the subsequent action by this Chancellor to reverse the extremely modest expansion that was prompted by his right hon. and learned Friend the former Chancellor of the Exchequer.
The Chancellor's actions in 1984 were part of the Tory tradition that stretches back through Reggie Maudling; and Heathcoat-Amory to the Chancellorship of the late lamented R. A. Butler, a much respected and endearing man in many ways, but he was also the father of the congenital Conservative practice of making concessions


before an election and, if successful in buying votes, taking those concessions back after the election. [Interruption.] That, indeed, is precisely what R. A. Butler did in 1955 when he presented the April Budget. I am sure that you, Mr. Deputy Speaker, will recall that Budget, as you were active in the engineering business at that time.
In 1955 Rab Butler took 9d off the standard rate of income tax and raised tax thresholds. Just three months later, after the election, he introduced special measures. In October he brought in a special emergency Budget to reverse all the tax changes. [HON. MEMBERS: "Oh."] Those actions are memorable, not only because of the cynicism that they engendered, but because of the unforgettable appeal that the late Lord Butler made to the nation to respond in pursuit of his demands for stringency. I am sure you will recall, Mr. Deputy Speaker, as I do, that Lord Butler said that the nation should
not drop back into easy evenings with port wine and overripe pheasant.
In our prefab I clearly recall that my mother and father gave up port wine and over-ripe pheasant for the duration. As I recall, they even gave up dressing for dinner.
Even more memorable from that period was the fact that that Budget marked the onset of the "stop-go" era in the British economy—an era that has cost our country so dear. There was the periodic "go" for consumption and mainly "stop" for investment. As we listened to the Chancellor today, that is exactly what we heard all over again — "go" for consumption, and "stop" for investment. Of course, it was wrapped up in a great deal of talk about "recovery", "strength", "buoyancy" and "prudence", as if the Budget was a carefully compiled climax to all the years of prudence and planning undertaken by the Government. The trouble is that, for the Government, all the facts belie any claims of prudence, buoyancy, recovery and care.
The fact is that we have a Chancellor who, just three months ago, in December, was saying that he doubted
very much whether there will be much scope for reductions in taxation in next year's Budget.
For once, the right hon. Gentleman absolutely meant it. It was not part of a disinformation campaign to persuade people that there was nothing much coming so that there would be great delight when something did come. The right hon. Gentleman meant his publicly expressed doubt about the prospect for income tax reductions. It was the confession of a man who knew very well that the reality of unplanned public expenditure overruns and an oncoming balance of payments deficit, together with his mismanagement of both interest and exchange rates, was catching up with him. There was no talk then of "lucky Lawson", and that was only 12 weeks ago.
It is no wonder that there was no such talk, because the Chancellor was also aware of the fact that, after nearly eight years of Conservative rule, the economy was still not back, as represented by all the important indicators, to the performance standards that were inherited in 1979.
We have had nearly eight years of oil-rich Conservative rule—some seven and a half years—with £60 billion net oil revenues and all the immense advantages of the saving

son the balance of payments because we were an oil-producing, oil-exporting country. With all those advantages, the Government still blew all the great opportunities that went with being oil rich.
As I said earlier, manufacturing investment is now 20 per cent. lower than it was in 1979. The manufactured trade surplus that the Government inherited in 1979 was £2·7 billion. This year the manufactured trade deficit is approaching £7·5 billion, even on the Chancellor's admission. In the years from 1979 manufacturing exports have certainly gone up by 15 per cent., but manufactured imports have gone up by 48 per cent. in volume over the same period.
In the early part of his speech the Chancellor spoke of a great productivity surge that has taken place under the Government—unbeatable, unrivalled by other countries. The Chancellor forgot to tell us about the starting point. He also forgot to say how that productivity surge has been achieved under the Government. It has been achieved by fewer people making fewer things. Indeed, 28 per cent. fewer people make 4 per cent. fewer things, because manufacturing output in Britain is still, in 1987, 4 per cent. lower than it was in 1979. So much for productivity Tory style.
What of taxation, the centrepiece of today's Budget? The tax burden as a proportion of the national income was still, in 1986, 18 per cent. greater than it was under the previous Labour Government. As a consequence of today's changes, that figure will not have altered significantly. To bring down the level of the tax burden, as a proportion of national income, to the 1979 figure the Government would have had to cut tax today by £15 billion.
The tax burden on the average household — the people who are supposed to concern the Prime Minister very much and who are said to want additional sums net of tax to be able to look after themselves, which is an instinct that I well understand—under this so-called tax-cutting Government has gone up by 10 per cent. To bring their tax burden down to 1979 levels there would have had to be a cut in the standard rate to 23·5p in the pound. [Interruption.] I realise why those figures make Conservative Members so agitated. They represent the shattering of every one of the central promises that they made to the people in 1979 and in 1983.
The Prime Minister says that she wants the citizen to be able to keep the lion's share of his earnings, but it is obvious that the Government have never practised what they have preached, except for the top 10 per cent. of earners. For the other 90 per cent. of British earners and pensioners, national insurance contributions, rates rises and VAT increases have all ensured that they have kept less of their incomes post-tax than they did in 1979.
The Government are not only the biggest taxers in modern British history, but the biggest job destroyers and biggest poverty spreaders. They have presided over an increase of 2 million in unemployment and of 2¾ million in the number of men, women and children in poverty. That is the Government's record. The real state of our economy and society is that after eight years the country is more divided and more impoverished with higher taxes, higher unemployment, and higher crime rates as well under this Government of law and order. In the middle of all that mess, along comes the Chancellor of the Exchequer with a Budget that completely ignores each of those


realities and attends only to tax cuts which, to his surprise, he is now able to offer. Lucky for him, but I wonder whether it is so lucky for the country.
To answer the question whether it is lucky for the country, we have to investigate the sources of these funds: the causes of the Chancellor's so-called "room to manoeuvre". First, it is resourced from the privatisation swag—the proceeds of the once-and-for-all sale of what the late Earl of Stockton called the "family silver". Secondly, the windfall comes from an increasing corporate tax take, as the Chancellor said. This is the corporate tax take by a Chancellor who removed investment allowances and, in the process, gained himself additional revenues to fund a tax giveaway and extra consumption. The awful irony is that the consumption boosted by that process will be the consumption of imported finished goods.
We have a Chancellor who has been disabling this country's investment while increasing the consumption of the produce of our competitors. Such consumption provides the third source of revenue for this give away. Much of the revenue has come from VAT levied on imported manufactured goods bought on tick in a Britain now undergoing its biggest ever credit spree—a credit expansion that has doubled household debt in seven years and been the major source of what expansion there has been in the economy.
I heard the Chancellor giving us a lecturette on the way in which those who had argued that fiscal expansion was necessary to bring about an expansion of the economy had been vanquished. He did not say that one does not need fiscal expansion so long as one is massively increasing the debt of households and financing recovery, or attempted recovery, in the economy by that means. Indeed, one does not need fiscal expansion in great measure when the level of that debt is up over those seven years, from £80 billion to £210 billion.
Most people know, as the Chancellor knows, and as you, Mr. Deputy Speaker, and I know, that that cannot last. It will not last because, as the oil runs down, as the productive sector stands almost still, and as the trade deficit grows, the real economy is not strong enough to sustain that credit bubble. That is why it was all the more essential for the Chancellor to take the opportunity today of the revenue windfall, to count his blessings, and to use that temporary and unexpected bonus to address the economy's real problems. Instead of spraying Britain with across-the-board cuts, he should have been using those funds to combat unemployment, to mitigate poverty, to stimulate investment, to build houses, to develop industry, to invest in education and to encourage and improve training and research.
Those were the priorities that the right hon. Gentleman should have adopted. There was no shortage of prudent and productive options. He could have restored the lower tax band and assisted people, especially those on lower incomes, so that they were eased into payment of tax. He could have used resources to start making up the losses which the Government have inflicted on pensioners by breaking the link between average earnings and pensions. As pensioners look forward to an 80p a week increase for the single pensioner and £1·30 a week for the pensioner couple, they must ruefully reflect on the fact that, had that link been maintained by the Prime Minister and her Government, in 1987 pensioner couples would be £11·40 a week better off and single pensioners £7·20 a week better off.
For £3 billion, the Chancellor could have obtained 90,000 new houses or 250,000 repaired houses. He could have obtained 1·5 million nursery school places or 210,000 extra further education places. For £3 billion, he could have obtained a computer for every secondary school child, day centres for 2·5 million old people, or treatment for 3 million hospital cases. He could have exercised any one of those options. For that £3 billion he could have given every old-age pensioner an extra £6 a week. Instead of adopting the attitude that he has taken today, he need not let them go through another winter in which they have to see what the temperature is before knowing whether they can afford to put the heating on. Housing, education, care, health services, support for the old and support for the disabled cannot be improved by tax cuts—whatever else the Chancellor may do with tax cuts — and the British people know that.
There was another choice for the Chancellor. He could have targeted his billions on jobs that this country needs, to be done by people who need to do them. He could have used £3 billion of targeted resources to generate 300,000 jobs in Britain. Instead, his tax cuts will secure, over two years, at best an extra 80,000 jobs in Britain. What a wilful waste of resources and of opportunity, especially as the British people strongly prefer investment in jobs, in economic strength and in modern social, health and education provision. They emphatically and repeatedly record their view that they want cuts in unemployment and in waiting lists and reductions in poverty and division more than they want concessions in income tax. They understand that failure to invest in those advances guarantees a future of insecurity, under-performance and unemployment for our country. In that understanding they show far more prudence and far more patriotism than either the Chancellor of the Exchequer or the Prime Minister.
That is why, despite the pre-election largesse, despite the giveaway, despite the bribes, the Chancellor of the Exchequer, with this Budget, invites not the celebration of the British people, but their contempt.

5 pm

Sir Julian Ridsdale: In reply to the Leader of the Opposition I would simply say, "It's better under the Conservatives." The country knows it, and when the time comes I am sure it will keep it that way. In his heart of hearts the Leader of the Opposition knows this. His criticism today reminded me of a man whistling to keep up his courage. The only snag is that he had to go on whistling for rather a long time.
I congratulate the Chancellor most warmly on his Budget. It is the result of careful and prudent husbandry which has seen us through the Falklands war, the miners' strike and the severe drop in the oil price last year. I shudder to think what would have happened if the Opposition had been in power in those years, knowing their tendency to spend up to the hilt of their income and even more—at least that was the record when they were in power.
Last year's prudent Budget is the background to the rosy position in which we find ourselves today. Unemployment has fallen in the past five months and is now lower than a year ago—but not a word of praise for this from the Leader of the Opposition. How glad I was to hear the Chancellor say that unemployment had fallen by 100,000 since last July and that the youth


unemployment rate in the United Kingdom is now below the average for the European Community and is falling, too. There are now a million more jobs than there were in 1983 and we have a faster rate of increase in employment than the whole of the European Community put together. Job vacancies in the past three months have been at their highest level since 1979.
Privatisation has gained increased momentum. Fourteen major businesses with 500,000 employees have been privatised so far. The number of individual shareholders has more than trebled since 1979. How encouraging it was to hear the Chancellor say that shareholders at present number 8·5 million. What a long way we have come since I introduced my employee share ownership scheme in 1978, and how encouraged I was to hear the proposals for a profit-related pay scheme. This will help the people on the shop floor and those in industry. How disparaging the Leader of the Opposition was about the performance of manufacturing industry today. He ought to be aware how much manufacturing output is going up.
Turning to investment abroad, the figure given by the Chancellor of the Exchequer of £100 billion net assets is a new one today. It is very encouraging for our economy because it means that we have been under-estimating the present income that our foreign assets are earning annually; the present figure is £5 billion.
What a difference from 10 years ago when we had a hung Parliament ruling this country. Because overspending, capital spending had to be pruned by 25 per cent., expenditure on the Health Service was slashed by more than 30 per cent. and on major roads by 31 per cent.
The Leader of the Opposition talked about the pensioners. Let us remember that twice in those years the Christmas bonus for pensioners was cut—and all those promises——

Mr. Kinnock: Ask the pensioners.

Sir Julian Ridsdale: If the Leader of the Opposition wishes to interrupt me, I will sit down. I do not like his interrupting from a sitting position.

Mr. Kinnock: I would just invite the hon. Gentleman to go to any old age pensioners in his constituency and compare what they receive now with what they received before 1979 when there was a link with average earnings. He will find that over those years the rise in real terms in the value of the pension was 20 per cent.; under this Government it has been 4·5 per cent.

Sir Julian Ridsdale: The right hon. Gentleman may deal in figures, but I know my constituency very well. It has 30,000 pensioners. I can assure him that what they value more than anything else is stability in prices, not the kind of inflation that they had under the Labour Government. Nor has there been a word of welcome from the Leader of the Opposition for the generous help that the Chancellor is giving to the over-80s. These are the people who have had difficulty, and I would have thought that the Leader of the Opposition might have said something about them, since he professes to care and criticises us for not caring.
I welcome the changes that have been made. It was a difficult judgment for the Chancellor to get the right

balance between helping over the public sector borrowing requirement and so lowering interest rates. I hope that because of this judgment we will see a big reduction in the next few months in mortgage and interest rates — something that will help manufacturing industry far more than the wild promises of the Leader of the Opposition today.
I welcome, too, the help given to the blind, as will people in my constituency. Then there is the help given by the reduction of 2p in the rate of tax, which is worth £3 a week for the average earner. This will help to improve our already growing productivity.
I underline the help given to small businesses. We know how much small businesses are taking off in our constituencies. The kind of encouragement given them by the Chancellor today will be of great assistance to them.
I now turn to the wild promises of the Labour party which have been costed at £28 billion. It all sounds like a repeat of the disastrous policies between 1974 and 1979 which led to runaway inflation and the erosion of the lifetime savings of pensioners. They will never forget that, and I must point this out to the Leader of the Opposition. The same sort of runaway inflation would happen again if we were to have the policies which he is at present trying to sell to the country.
As regards the alliance, who really thinks that an incomes policy would do any good or that we can increase public spending when it is already at 44·5 per cent. of national income? Yet the alliance now wants to do this. I know that alliance Members here at the moment are laughing about that, but these are the words of a former spokesman of the Social Democratic party, John Horam, which he uttered just recently when he crossed the floor from the SDP to the Conservatives. How much we welcome him in the Conservative party today.
It would be wrong of me not to point out the nearly 30 per cent. increase in rates that we face in Essex as a result of the hung council at county hall. My local district council, which is Conservative-controlled, has been able to peg its rates this year, but the warning is there. We must remember the hung Parliament of 1974 to 1979 which led to such disastrous rates of inflation and the hung councils which throughout the country have led to a heavy rate burden, not as costly as those of Labour-controlled councils but steep nevertheless.
Do not let us have any more hung Parliaments or councils. It has been difficult enough to get the Treasury to reform local government finance. The ratepayers in north-east Essex cannot have a general election soon enough to return a Conservative Government so that we can reform local government finance.
Against the background of this Budget, for which we all thank the Chancellor most warmly, we can look forward to the future, locally and nationally, with confidence and optimism, as long as we do not let hung councils or a hung Parliament hang our country. It is better under the Conservatives. Let us keep it that way.

Royal Assent

Mr. Deputy Speaker (Mr. Harold Walker): I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act:

1. Social Fund (Maternity and Funeral Expenses) Act 1987.

WAYS AND MEANS

Budget Resolutions and Economic Situation

Amendment of the Law

Question again proposed,
That it is expedient to amend the law with respect to the National Debt and public revenue and to make a further provision in connection with finance; but this Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

(a) for zero-rating or exempting any supply;
(b) for refunding any amount of tax;
(c) for varying the rate of that tax otherwise than in relation to all supplies and importations; or
(d) for relief other than relief applying to goods of whatever description or services of whatever description.—[Mr. Lawson.]

Mr. Donald Stewart: The hon. Member for Harwich (Sir J. Ridsdale) seems to be perturbed at the thought that the next Parliament might be a hung Parliament. That does not augur well for the sunshine forecasts of a great Conservative majority next time round. He may be taking a more realistic look at the situation than many of his right hon. and hon. Friends. He also mentioned inflation. I remind him that at a time during this Government, inflation reached 26 per cent. It was put up by this Government slapping on VAT at 15 per cent. The Chancellor takes a great deal of pride in reducing income tax, but it is clear that the lower-paid have lost out because of the imposition of 15 per cent. VAT against the reductions made in income tax.

The Minister of State, Treasury (Mr. Peter Brooke): Perhaps the right hon. Gentleman would write and tell me the year in which VAT reached 26 per cent.

Mr. Stewart: Inflation was at 26 per cent. As far as I recall, I did not say that VAT had reached 26 per cent.

Mr. Brooke: I meant inflation.

Mr. Stewart: I will do that.
The Budget, taken as a whole, was an unfortunate, dull, mechanical exercise. It reminded me of an exercise in an imagined situation in an accountancy examination rather than a Budget dealing with the reality of life in the United Kingdom.
There is no doubt that the kitty for income tax relief has been amassed by drastic reductions over the past few years in the quality of life and essential amenities and services in Britain. The Secretary of State for Social Services replies to accusations about reductions in the quality of those services by quoting figures about increases that the Government have made. One can only ask: are the doctors, nurses and patients in the hospitals under a delusion when they claim that services have been reduced, that many hospitals have empty wards, that many wards have empty beds, that the waiting lists are increasing, and so on? That is the reality with which the Government have to grapple.
In education we have had a series of attacks on the universities and schools. We have not yet reached the stage

of burning books, but the books are becoming so scarce that there may not be books to burn if it ever got to that stage.
Local authority services have deteriorated, with cuts in rate support grant, and so on. The picture of a country returning from a depressed state into a state of affluence is a lot of nonsense for most people in this country. It is regrettable, too, that there has been no improvement in old age pensions in this Budget following the severe winter that old people have just experienced.
The Chancellor said that unemployment is falling. The figures for unemployment certainly are falling, but we know that that is due to changes in the methods of calculation in the past few years and the introduction of training schemes, however useful, which were dismissed by the Prime Minister in her days in opposition as not being real jobs.
I welcome the change in VAT collection on the basis of cash received and the requirement that a single annual return for VAT is all that will be required. That is of great assistance to the small business man and will be of real use in increasing business and production. I must say that I was rather amused by the Chancellor's explanation that it all depended on getting permission from the EEC. That is another piece of evidence of the way in which this country has lost its sovereignty as a member of the EEC.
I welcome the VAT relief for charities, ambulances, drugs and medicines. We regard that as some advance. However, if one looks at it in a compassionate way, the charges should never have been included in the first place. I welcome the fact—it is an extremely useful move—that unleaded petrol is now the same price as four-star leaded petrol. I welcome also the increase in the blind allowance. I am sure that that will be welcome all round.
In my view—I think it is widely shared—income tax relief should have been used, if at all, for taking the lower-paid out of the tax system altogether.
The Chancellor claimed that the Budget was built on success. I would say that the Budget was built mainly on the misery of the unemployed. The Chancellor, like the Government, appears to assume that the unemployed, like the poor, are always going to be with us. That is a terrible defeatest attitude and the Government have no solution to achieve any real reduction in the numbers of unemployed.
The Scottish National party, because of the oil, calls for an oil fund which would deal with unemployment in Scotland. We see that a number of European countries are able to keep unemployment under 5 per cent. That would be a realistic aim in an independent Scotland. Until we achieve that, even in a United Kingdom context, the Government could have made a much more sensible and compassionate stab at improving the situation than they have done today.

Sir Kenneth Lewis: I have to say to the right hon. Member for Western Isles (Mr. Stewart) that I have seen many Budgets in my time, and he has seen a few, but I do not think that either of us will ever see a Budget presented by the Scottish National party.
I suppose, if I have my years right, that I have seen 28 Budgets, but there have been some years in which we have had two or three Budgets so I suppose I have probably seen nearer 38 if one counts those extra Budgets over he years. They have been of all colours. There have been red Budgets from the Opposition, blue Budgets, grey Budgets


and black Budgets. This one was bound to be blue. I thought that it was going to be bright blue, but it is a slightly pale blue. I do not think it is as expansive in its give aways as some people expected. I do not think that anybody can say that it is an election-bribing Budget. The Leader of the Opposition was prepared to say that—I could not hear him all the time—and I think that he tried to say it, but without much conviction.
It is a reasonably good Budget. It has half an eye on reality and half an eye on a general election. At least we can crow about the Budget. If the Opposition had been in government they would probably have had to postpone a possible election because they could not have provided a sufficiently attractive Budget. At least we are in a position where, because of the state of the economy—in certain directions—we are able to have this reasonably good Budget. The Opposition are full of promises, but the one thing they do not promise is that after the election they will give us a give-away Budget.
Both the alliance and the Opposition have told us that they will take back some of the tax reductions that we have been given today.

Mr. David Maclean: That was yesterday.

Sir Kenneth Lewis: Oh, they have changed their minds, have they? [Interruption.]

Mr. Deputy Speaker: Order. We are having a little too much audience participation.

Sir Kenneth Lewis: We cannot hope for much from the Labour party, and I would guess that the country can hope for still less from the alliance parties, even if they were to do a deal with the Labour party.
The Budget has to be taken together with the autumn statement — a give-away announcement in which my right hon. Friend the Chancellor surprised many of his hon. Friends by pushing several billion pounds into the economy at a stroke. I think it was during the autumn statement that my right hon. Friend got rid of his hard man image. Today he has a new image as a cautious Chancellor who has not taken too many risks. Probably his long period of driving on those financial motorways — the M1 and the M3 — has taught him that he had better not be a hostage to fortune and that he must be cautious.
I hope that my right hon. Friend will give the £4 billion that he pushed into the economy in the autumn time to have its effect. Money in the pockets of the people and in the public purse takes time to fructify. Some of us wanted that £4 billion to be made available perhaps six months earlier. It might then have had more time to affect the electorate. Budgets, too, take time to have their effect. I doubt whether the charges that this was an election-oriented Budget will stick now. We should let it have time to take effect and allow the Opposition the benefit of a long hard summer in which to get politically tanned. My right hon. Friend the Prime Minister should think again about going to the country too quickly.
It is always difficult to react immediately to proposals such as these, and I have a certain amount of sympathy with the Leader of the Opposition in that respect. I believe that he tried to put too much into his speech today.
I relate my brief remarks about the Chancellor's proposals first to the PSBR. I know that there is a great deal of merit in keeping the PSBR down, but I wonder whether it needs to be kept quite so low. My right hon. Friend the Chancellor talked about the buoyancy of the economy, and it was his great success story, but said that he had to keep the PSBR down to £4 billion. If he could have let it rise to £5 billion we should have had another £1 billion available for what was needed. My right hon. Friend sitting on the Front Bench knows perfectly well, because of the hat that he wore before, that increased spending is needed on higher education, industrial training, and so on. Just that little extra, added to what he did in the autumn, would have been a help. I believe that the Chancellor is being over-cautious in screwing down the PSBR to £4 billion.
But even if my right hon. Friend did not want to increase the PSBR, why could he not have taken other action? The fact that there was no increase in excise duty on cigarettes and alcohol was probably the biggest surprise in the Budget. I was delighted. I drink a little and smoke too much, and I have got off the hook completely. However, a modest increase, at least on drink, would have given the Chancellor a little to spend on other things.
I am delighted with the announcement about the proposals for relating pay increases to profit. The Government should build on that after the general election. I hope that employers will support the provision because it will need their support to make it stick. I am pleased, too, that small business has been assisted in the provisions relating to the handover from one generation to another. The increase from £100 million to £125 million will be very helpful. The VAT changes will also be helpful to very small business. We have all had letters about the subject, and at last notice has been taken of it.
No one can do other than applaud the reduction of the standard rate of tax from 29 per cent. to 27 per cent. It means that since 1979 we have reduced tax from 33p in the pound to 27p in the pound. However, I am disappointed that the Chancellor did not raise the thresholds a little above the normal rate of inflation. One of the biggest deterrents to hard work today is that when a young man comes into a reasonable salary he loses one third of his income when national insurance is taken into account. That is a tremendous disincentive, and I wish that something would have been done to deal with it.
We started to consider portable pensions a year or two ago, and the provisions announced today will be of great benefit. I support the proposals that people should be allowed to opt out and do their own thing and that they should be able to add to their pensions. On the basis that I would not come away with a large pension when I left this place, I took out some additional pensions myself some years ago. That did not cost me much. Over a period of years I paid in a few hundred pounds each year, and I am now picking up the benefits. I found that the money that I was allowed to draw as a capital sum was in fact more than I had paid in, plus the pensions. That does not happen with the House of Commons pension, and I doubt whether it happens anywhere else in the public service. Of course, public service pensions are index-linked, as is the House of Commons pension, whereas mine are not. My right hon. Friend the Chancellor has done something very useful indeed in encouraging people to add to their company pensions by buying in for themselves out of savings.
This is a good, but cautious, Budget. It is a responsible Budget. I do not think that it is a vote-seeking Budget. I doubt whether the general election will be called on the basis of this Budget. The election will be about people's view of whether the economy in general is better run by this Government and this Chancellor than it would be by the Labour party or the alliance. I believe that the public will vote in favour of what they have got rather than what they might have.

Mr. Roy Hughes: The hon. Member for Stamford and Spalding (Sir K. Lewis) was not exactly ecstatic in his praise. The Chancellor delivered his Budget this afternoon. It contained few surprises. As usual, there were whispers beforehand. Some were accurate, and a few were not so accurate. I regret that there was nothing in the Budget for the ordinary pensioner. I reiterate the sentiments expressed by my right hon. Friend the Leader of the Opposition. He pointed out that the Government had previously broken the link between earnings and pensions. Pensions are now merely indexed in line with the retail prices index, with the result that the value for a single person is £8·05 per week less than under the old rule, and for a married couple it is £12·75 per week less. That drop has meant a considerable loss to pensioners, particularly those in real need. In that sense, the Chancellor fluffed his opportunity.
There is nothing in the Budget about child allowances. Their value has been cut by about 3 per cent. since the Government were elected in 1979. Families with children have certainly fallen behind, and again the Chancellor has missed his opportunity to do something about it.
What is the overall thinking behind the Budget? The answer is that the so-called popular Budget is calculated to try to influence the result of the next general election. At the same time, the Chancellor has attempted to maintain a veneer of prudence. The essential part of the popularity aspect, of course, was to cut the basic rate of income tax by 2p, from 29 to 27 per cent. Throughout their eight years of office the Government have congratulated themselves on cutting taxes. The facts diverge from the rhetoric. When the Government came to power the average person paid 35p in the pound, including VAT and income tax. Until today the figure was 38p in the pound. All that we can do now is to thank the Chancellor for at least giving us back some of our money.
I perfectly understand that no one likes paying tax. Nevertheless, if opinion polls are anything to go by, the majority of people in Britain today say that the handouts that were announced this afternoon would be better used in the creation of jobs and the improvement of social services. The British people are wise in their reasoning. The greatest problem facing our country today is that of unemployment. Every study on the subject shows that public expenditure is a far more cost-effective way of generating jobs than are tax cuts.
Instead of tackling that great social evil the Government seem to pretend that it does not exist. That is why, since 1979, when the Government came to power, there have been 18 or 19 changes in the way in which employment statistics are compiled. The latest report is that the Government are proposing to drop the publication of Britain's registered unemployment figures. Incidentally, that has since been denied by the Secretary of State for Employment, Lord Young. Perhaps we could

repeat the famous words of Mandy Rice-Davies, "He would, wouldn't he?" It is time to restore some credibility to such vitally important statistics, so that we can then better assess how the Budget and other Government policies relate to them. I am glad that the Labour party has pledged to re-establish an objective basis for the calculation of the jobless total.
Yesterday, we heard the latest crime statistics. They certainly reflect no credit on the Government. Recorded offences are up 7 per cent. and the clear-up rate is down 5 per cent. The Conservative party has always publicised itself as the party of law and order. That claim looks a bit shabby today. We are all aware that there are many reasons for the rise in the incidence of crime. There is the permissive society, easy divorce and the subsequent breakup of families. There is a lack of family and community sanction against wrongdoers.
I go along with the old adage that the devil finds work for idle hands. When shop windows are full of goods and many people have time on their hands, the tendency towards crime is greatly increased. That is why the Budget should have given the highest possible priority to getting people out of the dole queue. Give them work to do. Many of them have now lost the discipline of a work schedule. They should be given a stake in society. When that is done, there will be less tendency to engage in crime, whether it be burglary, mugging, rape or other crimes.
In the run-up to the 1959 general election, which some of us are old enough to recall, Mr. Harold Macmillan, the late Lord Stockton, told us that we had never had it so good. At least unemployment then was less than 2 per cent. According to the questionable official statistics now, it is over 13 per cent., yet Britain is in the throes of a consumer boom. Tax revenues are buoyant. They are boosted by high consumer spending and corporation tax receipts.
The Chancellor told us that the public sector borrowing requirement is set to the end of 1986–87 at around £3 billion lower than the £7 billion original Treasury forecast. Yet, because of the Government's earlier policies, British industry is in no shape to satisfy the consumer. A recent comment by the reputable National Institute of Economic and Social Research gave the game away. It said:
The economic strategy based on neo-classical economics, which was introduced at the end of the 1970s, resulted in an increase in unemployment from 1 million to 3 million. It has now been almost entirely abandoned.
Our principal trading rivals—Germany, Japan, and so on — are deriving much benefit from Britain's consumer boom. Meanwhile, there has been a marked deterioration in our manufacturing trade balance, from a surplus of £2·4 billion in 1982 to a deficit of £5·8 billion in 1986. In that economic experiment on the British people a great deal of our manufacturing industry was razed to the ground. The present consumer boom is overshadowed by the fact that our manufacturing base is still about 15 per cent. below the 1979 level.
It is not only manufacturing industry, however, that has suffered under this Government. Central Government grants to local authorities have been cut from 59·6 per cent. in 1979–80 to 44·3 per cent. in 1986–87. Meanwhile, our councils have struggled manfully to maintain services. I receive evidence of that almost every day from the Newport and Gwent councils.
Overall, Britain has become a shabby society, as the article in the Sunday Telegraph of 8 March by Paul Barker so clearly revealed. Thirty years ago Professor Galbraith


referred to private affluence and public squalor. That is the state of Thatcherite Britain in 1987. The leading article in The Observer last Sunday said that the Budget would throw money at the wrong people. How right it was.
Today's Budget should have been more about rebuilding Britain's industrial base and drastically cutting the dole queues. Likewise, it should have been less about the Government's short-term popularity. The continuing presence of the 3 million or so unemployed is a waste of economic resources and potential skills. There is a need to invest wisely in Britain's future, particularly in its greatest resource — its people. The Government should concentrate on building a fairer society. They should seek to eliminate the north-south divide and the division between the haves and the have-nots.
This Budget is essentially about cutting taxes. What justification is there for that when our schools in Gwent and elsewhere are so badly in need of textbooks and equipment; when the queues for our National Health Service seem to stretch to eternity; when our hospital buildings, and so many other public buildings, are crying out for a coat of paint; when countless numbers of homes lack basic amenities and are really unfit for human habitation; when so much of our infrastructure needs attention, modernisation and development? These problems will not be solved by an appeal to private greed. It is by those standards that this Budget is a failure.

Mr. Michael Shersby: I am sorry that the hon. Member for Newport, East (Mr. Hughes) takes such a gloomy view of what I consider is an excellent Budget. Like many of his colleagues on the Opposition Benches, he must have had a very disappointing and unhappy afternoon. One only had to look at the sad faces of Opposition Members as my right hon. Friend the Chancellor of the Exchequer was speaking to realise how many of them wished that they were hearing their own Chancellor making similar proposals.
This Budget confirms the continuing success of the Government's economic policy. It consolidates the Chancellor's achievements in encouraging industry and commerce and it will stimulate confidence and the creation of more jobs. I am very glad that it gives a welcome boost to industrial training and that it creates a climate in which training today will result in more solid job opportunities. I believe that the industrial training that is provided in this country is very substantial. I have a good deal of practical experience of seeing it in operation. The proposals of my right hon. Friend the Chancellor of the Exchequer to carry it forward will consolidate that substantial achievement.
I welcome the reforms relating to value added tax. They will be of great help not only to small businesses but to large ones. I am particularly glad about my right hon. Friend's announcement that value added tax will not have to be paid until the bills have been paid. Hon. Members on both sides of the House know only too well about the problems that are caused by slow payers and the difficulties that they have created for the cash flow of small businesses. The change in VAT to take account of those problems, which will enable VAT to be paid on an annual basis at the end of the year, will be very widely welcomed.
One of the interesting features of today's Budget concerns the Chancellor's proposals relating to performance-related pay. I was particularly glad to hear him announce the scheme for tax relief on PRP. I believe that it is significant, because it will forge a much closer link between the profit of an enterprise and the pay of its employees. I hope very much that in future there will be opportunities for further extension of the PRP tax relief scheme. I look forward to seeing the detailed proposals in the Finance Bill.
Any hon. Member who served on the Standing Committee that considered the Social Security Bill will be well aware of the lengthy discussions in Committee on the proposals for money-purchase pensions. Today the Chancellor has announced the bringing forward by three months of the arrangements that will enable individuals to make additional provision for their retirement. The greater scope for transferring from one pension scheme to another will make a very useful contribution to the mobility of labour. The provision that will enable employees to make extra contributions to pension schemes, with full tax relief, will be a great step forward. It will be of particular interest to the younger members of the working population. They will now be able to look forward to a very much more flexible scene and to greater opportunities to top up pension schemes with the results of their own labour.
One of the proposals that drew a certain amount of criticism today from Her Majesty's Opposition, and even a few jeers, related to inheritance tax. Those critical remarks were directed mainly at the increased limits, but those hon. Members who heard my right hon. Friend speak about the effect of the proposal on family businesses will, on reflection, perhaps come to the conclusion that it is very welcome. It will certainly be welcomed by a number of small firms in my Uxbridge constituency and by the people who have built up those businesses. They wish their children to follow them into those businesses—and their grandchildren, too — and they wish to expand employment opportunities in the town. It was a very important announcement. It is one of the many steps that my right hon. Friend has taken along this road, and I hope that in future years he will keep up the good work.
There are to he no significant increases in excise duty. The British people have waited a long time for this happy day. There is to be no increase in vehicle excise duty—the very substantial tax that we all pay on our motor cars. There is to be no increase in the tax on alcohol and tobacco. At last the British people are to enjoy relief from the taxation of these old favourites by successive Chancellors of the Exchequer. It is a very lucky day for the British people. They might care to reflect on what they would have heard had a Socialist Chancellor been standing at the Dispatch Box. I am sure that he would have imposed swingeing increases in the tax on all those items.
The Chancellor has shown himself to be compassionate in listening undoubtedly to the many representations about the blind allowance that he has received from many hon. Members. I welcome those increases, as will, I am sure, every member of the blind community. The Chancellor has also increased the age allowance—a very significant and important improvement—and has made some useful additions to VAT exemptions for charities. All this shows that the Chancellor has been willing to listen to representations made by hon. Members.
I turn to the reduction in the standard rate of income tax. How many hon. Members who were present in the


House in 1977, when the standard rate of income tax was 35p in the pound, would have thought that they would sit here today and hear the Chancellor announce that the standard rate is being reduced to 27p in the pound? And about time, too. I welcome the reduction because it will put another £3 a week into the pockets of average industrial workers in this country.
How many hon. Members would have thought that over several successive years we should have seen the tax thresholds increased by 22 per cent. more than the rate of inflation and by a further 3·7 per cent. today? These measures will bring relief to many low-paid workers in this country.
I would like to mention the nurses in whom I have long taken an interest. We all know that nurses are splendid, and many hon. Members have advocated that they should be paid more. In the Budget we see their taxation being reduced quickly, which will be very welcome to them and a very useful interim boost to their income pending the review of nurses' pay which is under way.
I think the Chancellor has been prudent and has not gone too far. He has not gone for a dramatic 4p or 5p reduction in the standard rate of income tax. He has produced a Budget which will generate further confidence, not just in the City of London but around the world, by keeping the PSBR down to 1 per cent. of GDP at £4 billion. Those who study the British economy surely must come to the conclusion that it is now firmly on course and that they have every confidence to continue investing in Britain.
Today we heard the Leader of the Opposition — I thought rather a sour and disappointed man — present his Socialist proposals for repatriating capital to this country. He gave the impression that, despite the proposal to abolish the Exchange Control Act, the Labour party had other ways of persuading people, but he did not say anything about inward investment in Britain. This is a two-way business. Inward investment in Britain will be encouraged only if our borrowing requirement is under control and interest rates are sensible.
This is a consolidating Budget, prudently organised, tackling the main problems which most people in this country want to see dealt with. The Budget also has a few fun items which will be welcome to those who enjoy putting a small bet on the horses. I wonder whether it will also affect the queue of people who appeared in JAK's cartoon in The London Evening Standard yesterday who were putting £5 bets on the Tory party winning the next election. Those of us who saw the cartoon will recognise a few familiar faces. [Interruption.] As has just been said, the Chancellor's proposals today apply only to off-course betting. [AN HON. MEMBER: "On-course betting".] Perhaps the hon. Gentleman will come forward with proposals during proceedings on the Finance Bill to extend it so that his colleagues can place those bets on a Tory victory at the next election. I do not think this is an electioneering Budget; rather it is a consolidation of eight years in office by this Government. I welcome the Budget of behalf of my constituents.

Mr. Malcolm Bruce: We have heard a number of speeches from Conservative Members, not all of them quite as enthusiastic as that of the hon. Member for Uxbridge (Mr. Shersby). I did not detect a great upsurge of enthusiasm or very convincing cheering from

Conservative Members when the Chancellor sat down. I wonder whether the Chancellor had lost that page and never found it. Some of the expressions on the faces of his hon. Friends gave the impression that they felt that something was missing from the Budget that they had been led to expect; that there would be more, but it has not actually arrived.
Those are the aspirations of Tory politicians looking to the election, not the aspirations of the British people looking to a Government who are prepared to face the problems which, according to all the indicators, they feel the Government ought to face. This Budget deepens the inequalities that have been aggravated by eight years of Conservative rule. There is nothing in this Budget for the unemployed, the poor or the low-paid. There is nothing in this Budget for the regions and nations of the United Kingdom, or for manufacturing industry. An opportunity has been missed, because the Chancellor indicated that he had potentially a considerable amount of room to manoeuvre and he chose to concentrate nearly all his resources on keeping down public sector borrowing to a record low level and giving a 2 per cent. cut in the standard rate of tax.
The Chancellor did not even choose to target taxes in a way that could have benefited the low-paid. Two or three weeks ago I was on a Channel 4 programme with Lord Young, who was arguing that the reason why the Government were coming forward with proposals for tax cuts was that many low-paid were still paying too much tax on their income. If he and the Government really believe that, they know that cutting the standard rate is not the way to target tax cuts to give those people the most benefit. The Government could have increased the thresholds proportionately, but chose not to do so.
The most objectionable thing about the Budget is that it has been targeted on a sort of synthetic creature, which is the standard Central Office-specified Conservative voter, at which essentially the tax cuts are aimed — nothing to do with the national interest. The arguments used to support that do not add up to the way that they have actually been applied.
I take up the point made by the hon. Member for Harwich (Sir J. Ridsdale). We regard as excessively cautious the public sector borrowing requirement being kept down to the low figure of £4 billion. If the reasoning behind that is to placate certain institutions in the City in the hope that this measure will help to bring down interest rates — which I concede it may do — I would have commended to the Chancellor the recommendation, which the alliance has been supporting throughout this Parliament, that we should become a full member of the European monetary system. In so doing we could bring down interest rates by about 2 per cent. The PSBR figure in the Budget is unlikely to bring it down by more than 1 per cent.
Secondly, as I think the Chancellor knows, although his Back Benchers do not, the factors that affect interest rates are diverse and include many other international factors, so they may not even work. In the process, opportunities have been ignored and lost to deal with the problems of the unemployed, to give something to the poor and to tackle the problems of disparities within the regions. I suggest that that is a very serious lost opportunity.
I noted in the Chancellor's introduction to his Budget — it is becoming repetitive, but it is still a star performance—his ability to select statistics that present


a picture of us living in an economic nirvana and suggest that it is rather disloyal and unfair of Members of Opposition parties to point to the realities of our society. The Chancellor talked about sustained steady growth, but ignored the enormous collapse that took place in 1979 and 1980, with the effect that manufacturing output is at least 3 to 4 per cent. less than when this Government came to power.
That is hardly an unmitigated success. Indeed, with oil prices weakening, it has contributed to the fact that, on the Chancellor's own forecast, we have a balance of payments deficit that will get significantly worse. Last year the right hon. Gentleman forecast that we would have a balance of payments surplus this year of £3·5 billion, and we actually achieved a deficit of £1 billion. I wonder what a £2·5 billion deficit forecast will turn out to be if we follow the Chancellor's track record in forecasting. I suggest that some uncomfortable indicators have yet to come home to roost.
The Government have not indexed customs and excise duties. Most people know that when that happens it only means that when the Government get round to indexing them later the increases will be that much more painful. I do not think that people will really expect to have got away with it indefinitely.
Nevertheless, I welcome some items within the Budget. Although I do not agree with the right hon. Gentleman's economic analysis or with his policy objectives, I think that he gives considerable attention to detail on many aspects of reform that are welcome and worth while. We would be churlish not to recognise that. The extension of profit-sharing in particular is very close to alliance hearts. Although it is relatively small and its impact will not be great, we welcome it. There are many more proposals to do with industrial democracy, profit-sharing and worker-share ownership that we hope will be developed in future.
As an environmental matter, 5p off the price of a gallon of unleaded petrol is welcome, not least because the leaders of the alliance will be travelling the country during the general election in a bus using this fuel. We much appreciate that contribution to our election fund. The only problem will be finding enough unleaded pumps around the country, but perhaps this move will help to speed up that process.
The measures introduced to help small businesses are welcome and are worth while. There are more substantial and fundamental things that we would like to see, such as the abolition of inter-business VAT transactions, because that would obviously save a great deal of administration as well as the capital that is tied up for small businesses.
There should have been regular increases in the allowance for the blind, but we are glad that it is being caught up. I see the hon. Member for Monklands, West (Mr. Clarke) waiting to catch your eye, Mr. Deputy Speaker. No doubt he would have liked to see more funding to enable his worthwhile Bill to take full effect. I make a personal plea for other sections of the disabled community, such as the deaf, who do not have the benefit of any such allowance. The time may come when they should be included in a similar benefit.
The extension of personal pension provisions will introduce flexibility and portability, which will help mobility, and certainly we welcome that.
As a Scottish Member, I wish to address some comments to the impact of the Budget in Scotland. The Government have talked traditionally over the past few months of a fall in the underlying trend of unemployment. Many of us are less than convinced that such a fall is taking place. The last jobless figures did not bode well for the Government. When we take account of the various job training schemes, the real jobs that the Prime Minister talked about when she was Leader of the Opposition are no more apparent now than they were then.
I must remind the House that in Scotland the underlying trend of unemployment, on the Government's own figures, is rising sharply. This causes great concern. There is nothing to make the people of Scotland believe that that will be turned round.

Mr. John Butterfill: Does the hon. Gentleman not agree that the tax relief proposals for oil exploration will be of considerable benefit to Scotland?

Mr. Bruce: The hon. Gentleman anticipates a point that I was coming to.
There are two factors within the Budget that will be of help within Scotland. The first is the proposed changes in the allowances for oilfields. These changes fall a long way short of what I would have liked and what will be necessary to stop the jobs haemorrhage, particularly in my part of Scotland. However, I do not wish to be ungrateful. That contribution is welcome, but more help is needed to bring on development. I wait to be convinced — I can put it no higher than that—that that adjustment will bring on a significant amount of additional development and so stop the slide in job losses in the oil industry. I sincerely hope that I am wrong and that the Government's calculations are right.
On the non-increase in customs and excise duties, the Scotch whisky industry will be pleased that it will not have to face that burden, but it would have preferred something else. The main burden of complaint of the Scotch whisky industry, as distinct from the makers of other spirits, is the discrimination against Scotch as a product that requires by law a three-year maturation period. The cost of holding those stocks is considerable. The abolition of stock relief, which the Government brought in a few years ago, continues to hit the Scotch whisky industry extremely hard. The industry's proposal for a statutory maturation allowance, which is essentially the reintroduction of stock relief, would help put the Scotch whisky industry back on its feet. I commend that to the Government for consideration.

Mr. Brooke: The hon. Gentleman referred to a statutory maturation allowance. I am sure he would be honest enough to agree that the maturation allowance under statute was something for which the industry itself asked in the first place.

Mr. Bruce: Yes, I agree absolutely, but my point is that the industry has not got it. I welcome the fact that the industry has put the application to the Government properly, but if I am not mistaken the point is that it is a statutory requirement that Scotch whisky should mature for three years. That is a major factor in the marketing of Scotch whisky. It is statutory, even if it was requested. The fact that that cost is incurred should be taken into account. The industry is looking for something reasonable. I do not regard it as unfair discrimination in favour of Scotch, but


a recognition of the cost of making Scotch whisky over three years as opposed to the production cost of gin and vodka, which can be made in three hours and put straight on to the market.
The essential point about any Budget is that it gives an indication of the priorities of the Government. I for one regard the whole ethos round Budget day as nonsensical. Many things happen on the economic front throughout the year that are far more important than the Budget. I wonder whether this ritual serves any purpose. What has been revealed in one hour's speech on one afternoon is an indication of the Government's priorities, but we knew what they were. They have not changed, which is regrettable, because with the onset of an election and the fact that the Government will have to test their policies, many people outside the Chamber were looking for action on unemployment and action to help the poor — [interruption]—not because it would bribe the electorate, but because it is right and it is what the people want.
People know that the Government will not change course and that, if they want different policies, they have to make sure that they throw the Government out. I and my colleagues look forward eagerly to the opportunity to do just that in the near future. The Budget is in accordance with the Tory Government's record. It does not offer hope to the poor or the jobless, or to the regions and nations of the United Kingdom. Many Tory Members may feel that it will please the City. I am not sure that it will please their constituents.

Mr. David Knox: I want to start by congratulating my right hon. Friend the Chancellor of the Exchequer on his fourth Budget speech. Like his previous Budget speeches, this was well constructed and commendably brief. The House is indebted to my right hon. Friend for the style with which he presents his Budgets and for making what could so easily degenerate into a tedious repetition of dull economic facts an interesting parliamentary occasion.
I believe that the less said about the contribution by the Leader of the Opposition the better. Let me offer the Leader of the Opposition some friendly advice. If he wants to indulge in the role of historian, would he please do the House the courtesy of checking his facts rather more carefully because he was completely wrong about Mr. Butler's Budgets in 1955? The facts do not bear out the remarks of the Leader of the Opposition.

Mr. Nicholas Fairbairn: Is it not rather strange that the Opposition Front Bench is unrepresented?

Mr. Knox: I am not sure whether my hon. and learned Friend believes that I have some responsibility for that, but I can assure him that I have not. However, I agree with him that that is very strange.
Hon. Members on both sides of the House would wish to give a warm welcome to a number of the measures in the Budget. The change concerning VAT will be particularly warmly welcomed by businesses. Easing the rules for the payment of VAT should help to overcome the problems which firms experience with late payers. For some time that has been a considerable problem for many firms in my constituency and elsewhere. My right hon. Friend the Chancellor has made a real contribution to

overcoming that problem and easing the lot of many people who contribute a great: deal to the economy of this country.
I also welcome the tax reliefs that will affect profits-related pay. Profits-related pay has an important part to play in strengthening the economy. If we can move along in that direction, that will encourage greater flexibility in pay bargaining and will also help to relate the level of pay more closely to the prosperity of individual companies. The lack of flexibility in pay bargaining has caused immeasurable problems in the post-war era in Britain and is largely responsible for the situation that has arisen so frequently of income-cost inflation in conditions where there was no demand-pull inflation. Although I do not expect miracles—and no doubt my right hon. Friend does not expect miracles—I am sure that this is a step in the right direction.
I warmly welcome what my right hon. Friend the Chancellor did with regard to excise duties. My hon. Friend the Member for Uxbridge (Mr. Shersby) referred to this point. I am sure that in the pubs tonight smokers and drinkers will welcome the fact that probably for the first time in living memory there was no increase in this Budget in the duty on cigarettes and alcoholic beverages.

Mr. Maclean: I will drink to that.

Mr. Knox: My hon. Friend has said that he will drink to that. Some of my hon. Friends will smoke to it as well, although I shall not.

Mr. Dafydd Wigley: In view of the fact that the Government have been unable to raise the £150 million to implement immediately the Disabled Persons (Services, Consultation and Representation) Act 1986, does the hon. Gentleman not think that the indexation of drink and tobacco would have raised more than that amount of money and would have been a worthwhile way of providing for disabled people who are not being provided for by the Government?

Mr. Knox: The hon. Gentleman is far too intelligent to think that such matters are interchangeable. There are other means of raising the money to which he referred.
People in the rural areas will warmly welcome the fact that there is to be no increase in excise duty for petrol arid other fuel and no increase in car licences. The duty on those items bears particularly heavily on those who live in rural areas. Many of my constituents will be delighted that there has been no increase in the duty on those items.
I welcome the fact that the thresholds on income tax have been increased again, although only by the rate of inflation this year. There were substantial real gains in recent years, so I suppose that we could not have expected much more. I also strongly welcome the additional help for the over-80s and the blind. I am sure that that at least is a change that will commend itself to both sides of the House.
The Budget will not be judged in the medium and long term by the specific measures that it contains because, alas, they will be forgotten very quickly. It will be judged on the consequences of my right hon. Friend the Chancellor's Budget judgment and on the consequences of his decision to go for tax cuts rather than for higher public spending. More specifically, the Budget will be judged by its effects on the two inter-related areas of unemployment and manufacturing output. I will consider those two points in


a few moments. First, I want to consider the Budget judgment and tax cuts. Of these, the former is immeasurably the more important.
My right hon. Friend the Chancellor has decided to reduce the public sector borrowing requirement as a proportion of GDP in the hope, presumably, that that will have a downward effect on interest rates. I regret that. I believe that that is no more than an appeal to a fairly primitive form of monetarism. I do not think that there will necessarily be any effect on interest rates, which can and should fall anyway. However, I believe that the reduction in the public sector borrowing requirement will deflate demand in the economy as a whole and may result in higher unemployment.
We have been here before. In 1981 the then Chancellor of the Exchequer reduced PSBR from 5·4 per cent. of GDP to 3·3 per cent. Although interest rates fell straight away from 14 to 12 per cent., by the autumn they had moved up to 16 per cent. In addition, the demand deflation of that reduction in the PSBR resulted in a rise in unemployment to more than 3 million for the first time since the 1930s. I am sorry that my right hon. Friend the Chancellor has done as he has done today. Had he decided, on the other hand, to increase the PSBR, that would have resulted in an increase in the demand for goods and services, private or public, and eventually in an increase in the demand for labour and so a reduction in unemployment.
I have little doubt that tax cuts will be popular with the recipients and in principle I have no objection to tax cuts. In principle, I have no objection to higher public expenditure either. However, I do not see either of those in the ideological terms in which some hon. Members view them—Conservative Members in favour of tax cuts and Opposition Members in favour of public expenditure. I believe that there are substantial advantages in both tax cuts and higher public expenditure. If there is to be a choice between the two, that should be taken on a pragmatic basis, and a pragmatic decision should be based on what is most sensible, logical and desirable in the circumstances that obtain at the time.
For some years there has been a strong tendency for additional consumer expenditure to find its way into an increased demand for imports rather than for the products of our own domestic industry. Tax cuts, therefore, have involved a risk that some of the extra money released would find its way into imports. Some of this money would, of course, boost domestic demand and to the extent that that happens, it is to be welcomed. For as long as we had a very healthy balance of payments surplus—as we have had in recent years — it seemed sensible that we should go for substantial tax cuts. We could then afford to take the risk that higher consumer expenditure would go to imports. There was a substantial balance of payments surplus to act as a cushion if that happened although, of course, it was to be hoped that there would be an increase in domestic demand from such tax cuts.
Today, that balance of payments surplus has disappeared. We are now in a deficit, and in such circumstances it was not very wise to take the risks inherent in tax cuts because of the further strains that they might place on a weakening balance of payments position. Therefore, I would have preferred my right hon. Friend to

confine himself to those public expenditure projects where the import potential was very low or non-existent. That would have seemed to me to be the cautious approach.
I mentioned that there were two inter-related problems of unemployment and manufacturing industry. We are now in our fifth year with unemployment over 3 million. From 1945 until 1974 we had full employment. The level fluctuated a little, but we managed to maintain employment at a high level throughout this period. Twice, briefly, unemployment exceeded I million and twice, also fairly briefly, in 1955 and 1965, unemployment was as low as 1·1 per cent. of the working population. It is a myth that unemployment started to rise under this Government. In fact, it started to rise under the Labour Government in 1974, and over the past 13 years it has continued to rise, although not at a regular rate. However, over that period, neither of the two Governments in office have had a good record on unemployment.
Alas, there has been a tendency in recent years towards a certain complacency about unemployment. Therefore, it does no harm for us to remind ourselves that for most of the post-war period the situation was better than it is now. The current level of unemployment shows how far we have moved from the high level of achievement in that 30-year period following the last war. The effects of unemployment are disastrous both socially and economically. Unemployment is socially divisive. It is difficult to have one nation when 3 million are out of work and l⅓ million people are long-term unemployed. The real division is between those in work and those who cannot find work, as the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan) said about 10 years ago.
Unemployment is also economically wasteful. If we are not using all the available labour in this country, it means that we are not maximising output. It is nonsense to suggest that demand somehow has reached its peak and that there is no more work available. We all know as individuals that we could consume more goods and services if we had the opportunity, and, if we could not, our families, and especially our wives, could. We also know we could do with better social and public services. I believe that the Government have a good record on the Health Service and education, but no one is under any illusion that we could not spend more on these two things.
Potentially, there is plenty of additional demand for goods and services, both private and public, in Britain today. Consequently, it is nonsense in such circumstances for people to be out of work. It is merely a matter of releasing the demand for more goods and services. As one who believes strongly in the efficiency of the free market, I have no doubt that labour, capital and enterprise would come together to ensure that demand was met. However, if this is to happen and if there is to be a real attack on tile level of unemployment, my right hon. Friend the Chancellor will have to be rather more adventurous with the public sector borrowing requirement.
I am deeply concerned about the decline in manufacturing industry that has taken place in recent years. Until 1973, output in this country had risen strongly since the end of the war. In 1973, manufacturing industry was producing more than twice what was produced in 1948. Alas, this progress has not been maintained. Worse than that, between 1973 and 1981 there was a severe drop Fortunately, there has been improvement since 1981, and I welcome this strongly. The Government should be commended for their part in it. However, the level of


output today in manufacturing industry is still lower than it was in 1973. In the last quarter of last year, it was almost 10 per cent. lower than it was in the last quarter of 1973, and that was more than 13 years ago.

Mr. Butterfill: What my hon. Friend has just said is completely contradicted by a research note produced by the Library, which is currently being issued, which shows that output is 0·2 per cent. higher over the same period. Perhaps my hon. Friend would like to refer to that.

Mr. Knox: If my hon. Friend refers to the official statistics, he will find that my figures are correct. They are published by Her Majesty's Government's statistical service. I repeat that in the last quarter of last year, manufacturing industry was almost 10 per cent. lower than it was in the last quarter of 1973, and that was 13 years ago.

Mr. Butterfill: What about these Library figures?

Mr. Knox: These statistics from the Government are more reliable than some that my hon. Friend may have got from the Library.
That decline in the past 13 years compares with an increase in output of almost 50 per cent. in the 13 years between 1960 and 1973. To illustrate further the seriousness of the situation, I point out that manufacturing output in January this year was about the same as it was in January 1974—the lowest point in the three-day week. No party has any right to try to make any political capital or mileage out of that. Both Labour and Conservative Governments have presided over a decline in manufacturing industry, and as the alliance was connected, in one way or another, with the Labour Government, it cannot dodge its responsibility either.
I accept that in a modern economy, manufacturing industry tends to employ a smaller proportion of the working population and it produces a smaller proportion of the GDP. At the same time, the service sector increases. However, this assumes an increase in GDP and a continuing rise in the output of manufacturing industry as new productive techniques are introduced and developed. Unfortunately, this has not happened in the past 13 years, although I hope that it will happen in the next 13 years.
For a nation such as Britain. a strong manufacturing base is essential because we are dependent on it to pay for essential imports of raw materials and foodstuffs. It is particularly important because the export potential of manufacturing industry is so much greater than that of the service sector. If we are to continue to expand our economy in the future, we must have a much stronger manufacturing base than we have had in recent years and it must expand more quickly, and, if we are to have a much stronger manufacturing sector, my right hon. Friend the Chancellor will have to provide more demand to enable it to expand. Again, that means that he will have to be more adventurous with the PSBR.
To sum up, I believe that my right hon. Friend the Chancellor deserves considerable credit for many of the specific measures that he has introduced today. However, I have some doubts about some of his macro-economic decisions, in particular relating to the PSBR.

Mr. Jim Craigen: Before the hon. Member for Staffordshire, Moorlands (Mr. Knox) reached his peroration I was about to say that I agreed

with many of the concerns that he expressed about unemployment and the need to remedy the decline in manufacturing capacity. In this Budget the unemployed have been forgotten and one of the few references that the Chancellor made to them was that there would be a threefold increase in the number of job clubs. I am sure that that will give great heart to the millions who are out of work. Even the references to improving vocational training incentives seemed to brush aside the recent report from the National Audit Office about value for money in respect of adult training programmes which the Government have been operating in recent years in an effort to try to reduce the unemployment statistics.
The hon. Member for Moorlands was correct in saying that this was not a dull Budget, but that was only because there was considerable laughter in the House at one stage when it looked as if the Chancellor had lost one of the pages of his statement. In some respects, one felt that something was missing from the Budget. Perhaps it was in that missing page. Perhaps it would have been a reference to unemployment, which was otherwise ignored, or a reference to reducing interest rates, to which I am sure many businesses were looking forward. [HON. MEMBERS: "Wait and see."' Conservative Members say "Wait and see" but the trouble is that we have been waiting for eight years for the Government to do more of the things that have been suggested.
One of the things that is clear from the Chancellor's statement is that he is keeping his options open. There was a considerable build-up in the weeks before this Budget about just what would he distributed by today's statement. The Chancellor made every effort this afternoon not to displease anybody. It is not clear how he will actually improve the economic and social fabric of this country. However, it was quite clear that he did not want to offend or upset any particular group. It was also noticeable that he spent a considerable amount of time giving away little titbits to some of his more influential supporters. It was just as well that he spent the first three quarters of his speech on that, because when he came to the end of his statement I thought, "Is that it? Is that the great give-away in terms of lowering the thresholds for taxation and reducing the basic rate?" I thought that because there had been a tremendous build-up of expectations.
The Chancellor had one eye on polling day, but he certainly did not have an eye on the prosperity, far less the posterity, of this country. One suspects that the situation may be worse at the Treasury than we realise —especially as I look at the Minister of State—because it is the consumer boom that has financed a substantial part of today's handout. That spending boom has given the Treasury revenues that were not expected at the time of last year's Budget. Those unexpected revenues come from extra VAT and corporation tax receipts. [Interruption.] It is just as well that the hon. Member for Penrith and The Border (Mr. Maclean) represents an English constituency, because he would never be elected in Scotland, and indeed one Scottish constituency sent him packing.
The reason for the unexpected windfall is that more consumers are getting goods on tick. The plastic card has played into the Treasury's hands. Consumer expenditure has risen because more people are getting into debt, as my hon. Friend the Member for Monklands, West (M r. Clarke) pointed out last week in the debate on the Debtors (Scotland) Bill. The Chancellor is benefiting because more


people are living on tick. Therefore, he is able to hand back money which, as has been pointed out, has been paid to the Treasury anyway by those same taxpayers.
What a pity that the Chancellor could not have said more about interest rates, because their high prevailing level in this country has been one of our impoverishments in terms of investment. If the Chancellor had been able to announce some good news on the interest rate front, that would have sent up a far greater cheer from many of the small businesses which he is, understandably, so anxious to assist.
The Budget will not really get more young people or adult unemployed into meaningful work. One can alter pension schemes as much as one likes, but one of the things that the pensions companies must hope for is that more people will be in jobs and can therefore contribute to pension schemes. Apart from requiring contributors, pension schemes also look for areas in which to invest.
I should like to mention briefly the Government's proposals for profit-related pay schemes. One must look beyond the superficial attractions here and not forget that the competitive position of some firms will inevitably squeeze their profitability, especially if they face considerable overseas competition. It remains to be seen — perhaps this will unfold in the later stages of the Finance Bill—whether the Government's proposals will be most beneficial to those paying the higher rates of income tax. It is easy to get lost in the superficial attractions of that.
Finally, I cannot see the Budget strengthening the social, industrial or economic position of Scotland at present. The Budget will not do anything of great significance to help the manufacturing sector, or even the service sector, in Scotland.
When one considers the favourable winds that the Government have had at their back during the past eight years, in terms of North sea oil revenues, the profits from the privatisation of public assets, the higher revenues from indirect and direct taxation and their attempts to reduce public expenditure, one says, "What a dim-witted lot have been in charge of this country's Treasury during those years." We have ended up worse off than we were when that shower were first elected.
One must treat the Budget warily. What was significant was what the Chancellor left out, rather than the people whom he tried to appease, assuage and please this afternoon.

Sir Anthony Grant: It is always a pleasure to speak after the hon. Member for Glasgow, Maryhill (Mr. Craigen), but this is also a sad occasion because I understand that he will not be with us in the next Parliament. I for one will miss him because I remember what a good colleague he was at Western European Union and on the Council of Europe. I do not agree with a word that he says. I am surprised to find that he is so puritanical about credit cards and spending. No doubt, he would like to have a much harsher regime. However, it is always pleasant to debate and argue with him.
It is very different with the Liberal party. As I listened to the Liberal party spokesman, the hon. Member for Gordon (Mr. Bruce), I was reminded of a remark by the

late Earl of Stockton that the Liberals are full of sound and original ideas but their sound ideas are not original and their original ideas are not sound.
This is a thoroughly responsible Budget, and I welcome it. It must be seen in the context of an increase in public expenditure of about £4·75 billion on such items as health and education in the autumn. That coupled with a reduction of £3 billion in the PSBR and the reduction of £2 million in taxation is a remarkable achievement by any standard, especially when at the same time our growth rate is the envy of many of our competitors abroad.
I support the tax reduction. I find the attitude of some people to tax reductions extraordinary and ambivalent. I always get irritated when it is assumed that the Government will give away something. They do nothing of the sort; they merely allow people to retain more of the money that belongs to them. The sooner we get that point clear in our minds, the better. It is also odd that, while many people are, rightly, deeply worried about the gross incomes of the low paid, they disregard the net take-home pay which pays the bills and maintains families.
Last week, at Question Time, my right hon. Friend the Prime Minister pointed out how much tax a nurse had to pay from her small income. I think it was about £43 a week out of £155. I heard a Labour Member shout, "Then pay 'em more." I find that astonishing. It shows the muddled thinking that prevails, not merely on the Opposition Benches, where we expect it, but through the country. In other words, such people are saying, "Give nurses more taxpayers' money so that they can pay more taxes to pay more money to people who are too heavily taxed on a low income who can then pay more taxes in order to pay more money to others and so on." It is a case of:
Great fleas have little fleas upon their backs to bite 'em, And little fleas have lesser fleas, and so ad infinitum.
I suppose that it can be said that that creates jobs for the Inland Revenue, so there must be some benefit in it, but what it has to do with national wealth creation, fairness or efficiency is beyond me.
It is odd that some members of the public are for ever criticising politicians, bureaucrats and civil servants, not always entirely without justification, and wanting them to control more of our activities, lives and finances. That seems paradoxical. There is even more ambivalence over the brain drain. I have been worried about that and have criticised the Government's attitude to research, which is important, especially at Cambridge. I am not convinced that the Government have fully taken on board the importance of that, and I look for some reassurance from Ministers during the Budget debate.
A lack of research facilities is only one factor in the brain drain; taxation is another. Direct taxation is lower in most European countries and particularly in the United States for those people than it is here. I keep hearing of bright young men and women, especially in science and medicine, who are lured abroad because of the better net financial prospects that they will enjoy. It is in everybody's interests that this brain drain should be stopped, and the reductions in taxation should help.
There is a fashionable theory which we hear bandied about that direct tax cuts do not promote harder work. I do not know whether the theory is right, but, if it is, it is surprising that an increasing number of people have been working increasingly hard in what is called the black economy where they do not pay tax. In any event, higher


taxation can hardly be said to he an incentive to greater effort. The Opposition may well ponder on that before they finalise their election manifesto.
I am pleased that the Chancellor recognised the problems of old pensioners. It is a mark of a civilised nation to care for its old folk and we have an increasingly aged population. In considering taxation, it is interesting to reflect on the many complaints that we receive from those who are taxed on their small additional earnings over and above their pensions. That is another aspect that should be pondered on.
It is always the well-heeled who moralise on the wickedness of taxation. I have a suggestion for them. They should give away any tax benefits that they receive to a charity or deserving cause, thereby saving the cost of a bureaucracy collecting it and doling it out. If they are anxious to take up that suggestion, I remind them that the Chancellor has made concessions on vehicles for hospices. I hope that that will help Cheshire Homes, of which I am a great supporter. That is a way in which all those high-minded people can dispose of their tax benefits.
My hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox), whose views I greatly respect, drew attention to the tax versus public expenditure argument. I agree that this is not a dogmatic, doctrinaire issue. I also agree that this is the time for taxation reductions rather than public expenditure in view of what has already been done. I notice that the five economic advisers to Governments between 1970 and 1979 take a different view and, incidentally, they are not short of a bob or two. I accept full responsibility for the period when I was a Minister, but the latter part of that decade was noted for high inflation, low growth, increasing unemployment and deteriorating services. I doubt whether the advice of the famous five is any better now than it was then.

Mr. Stuart Randall: I read the Financial Times letter to the editor, but I thought that it said from 1948 to 1979.

Sir Anthony Grant: If that was the case, their record is even worse because in that period we had low growth and rising inflation, particularly in the latter stages from 1974 to 1979 when the economic situation was undoubtedly deplorable. This morning Radio 4 pondered on a suitable collective noun for those advisers. I would suggest that "a folly of advisers" would be appropriate.
We have often been too obsessed in our taxation considerations with the highly paid and the lowly paid. We should not spend so much time worrying about the highly paid unless we are completely eaten up with envy. The tax they contribute is a relatively small part of the whole, and they are quick and smart enough to nip abroad or otherwise to avoid taxation. We should not forget the people in between who often make the biggest contribution to the nation's economic welfare. Direct taxation bears hard on them and they are all too often neglected. As Hilaire Belloc said:
The rich arrived in pairs and also in Rolls-Royces And talked of their affairs in loud and strident voices. The poor arrived in Fords, whose speeches they resembled And laughed to see so many lords and ladies there assembled. But the people in between were underdone and harassed And out of place and mean and horribly embarrassed.
That illustrates the difficulties that we face. The people in between are hard hit by high interest rates and include small business men, professional people who rely on an overdraft for financial capital and home buyers who

depend on mortgages. They are often cruelly affected by high interest rates. All too often they are forgotten by the advocates of higher public expenditure through Government borrowing. Therefore, a fall in interest rates would he the best news for small and medium-sized businesses and the property-owning democracy. I shall be surprised if the Chancellor's responsible handling of the PSBR over the years and in this Budget does not lead to a further reduction in interest rates in the near future.
I am glad that the Chancellor seems to be so splendidly converted to wider share ownership and I am delighted at the Government's record of an increased number of shareholders. I was a pioneer and founder member of the Wider Share Ownership Council with the late Maurice Macmillan and my hon. Friend the Member for Croydon, South (Sir W. Clark). For years we were crying in the wilderness, but now our desires are coming to pass. It is not only a question of increasing the financial wealth of people, but also of increasing independence and responsibility for the individual. The more people own shares and have a part in the ownership of our nation, the greater the responsibility and the more sturdy the bastions are against the ever encroaching power of the state. I welcome anything that is done in that respect, and the Government's record is the best that I can conceive.
This is an excellent Budget which is designed to help those who most need it while maintaining the stimulus in the economy. I want to end with a quotation from a distinguished source—

Mr. Michael Brown: Is it Belloc again?

Sir Anthony Grant: No, it is not Belloc again. It is a much more distinguished quotation than that. It reads:
If you want to retain power you have got to listen to what people …say and what they want. If you talk to people in the factories and in the clubs, they all want to pay less tax. They are more interested in that than the Government giving money away in other directions.
That was said on 14 March 1978 in advice to Labour's national executive by no less a person than the right hon. Member for Cardiff, South and Penarth (Mr. Callaghan). He is often quoted these days, apparently, but his words are as true today as they were then.
I do not know whether this is an electioneering Budget, and I do not care. If it is, I thank God, because it will save the nation from the horrors of a hung Parliament and Socialist rule.

Mr. Dafydd Wigley: The hon. Member for Cambridgeshire, South-West (Sir A. Grant) is the first Member to show some enthusiasm for the Budget——

Mr. Brooke: indicated dissent.

Mr. Wigley: I have no doubt that the Minister has a professional interest in the Budget and some enthusiasm for it.
The considerable divide between the two sides of the House has become evident in this Budget. One divide that has become apparent is that every Conservative Member who has spoken represented an English constituency, and every Opposition Member who has spoken represented a Scottish or Welsh constituency. That might underline the considerable divide. I accept that that divides between the north-west—north-east and the south-east of England. This Budget may have been acceptable and caused some


enthusiasm in south-east England, but it has done nothing to solve the basic problems that face my community, where there is 22 per cent. unemployment and considerable worries about the future.
In many ways, the Budget has given us a sign about the election, because we will have a minimalist Finance Bill which can be rushed through rapidly. I suspect that that heralds an election on or around 11 June, and everything in the Budget has been geared to that.
We had been hyped-up to expect a substantive and imaginative Budget. It may be that that over-hyping led to the sort of headlines that we had in yesterday's Daily Telegraph—
Growing fears over Budget 'giveaway'''.
I wonder whether, with that missing page from the Chancellor's speech, there has been a change of direction by the Government in response to those who have expressed such fears.
The Budget is a tinkering one. It is more concerned with changes in minutiae rather than with overall strategy. That may be expected as we come to a general election, but it has not answered those of us who have criticisms of the direction of general strategy.
Before I deal with those criticisms, I shall acknowledge some of the improvements and benefits from the Budget. The changes in VAT on small businesses are to be welcomed. The changes in VAT in respect of disablement equipment are to be welcomed, as are the changes in the blindness allowance, which was long overdue.
The encouragement of profit-sharing schemes is a step in the right direction, although many Opposition Members took offence when the Chancellor said that one of the greatest liabilities or problems that we had in that context was the work force. That was an unfortunate remark to say the least, and should be discouraged.
I welcome the clampdown on corporation tax, which will bring in much-needed revenue. The North sea oil proposals may be helpful if they develop and increase the scope of new oilfields. The business expansion scheme changes are to be welcomed.
I welcome one of the negative matters—that there is to be no increase in the cost of petrol or vehicle licensing duty, which have a considerable adverse effect on rural areas where transport is essential and not a luxury. I fear, as do other hon. Members who represent rural areas, Labour party thinking on this issue. Perhaps Labour Members can respond to reports that the Labour party may be thinking of doing away with vehicle licences and putting the cost on to petrol. That would not be acceptable in my area.
The Budget says next to nothing about unemployment, which worries us. The hon. Member for Staffordshire, Moorlands (Mr. Knox) was worried about the lack of strategy to reduce the 3 million — or perhaps 4 or 5 million if we take those on artificial schemes—who are unemployed.
There is nothing in the Budget about benefit rate increases. I realise, however, that those are now dealt with in a different manner. Representations have been made to the Government by various bodies, such as the Child Poverty Action Group, which strongly stressed the importance of child benefit, for example. I realise that these statements may not be made in the context of the Budget these days, but it is important to consider the

relevance of matters such as child benefit when considering factors such as the poverty trap. It is worth quoting what the Child Action Poverty Group said in its Budget submission:
At a time when the divisions in our society are growing ever wider, there can be no justification for squandering billions of pounds on tax cuts which will benefit the highest paid most. Instead, the Chancellor should announce a programme of tax reforms designed to help the low paid and families with children and commit the Government to increasing the resources available to those living on social security. Such a Budget would be a fitting memorial to the `one nation' policies advocated by the late Lord Stockton.
That is central in the divide between the two sides of the House.
There is little in the Budget about interest rate reductions. I take the point that has been made already that perhaps we shall hear more about that in the next few days, but if it is only an extra half a per cent. that will not be enough.
There is little on the question of social legislation. In an intervention, I referred to the Disabled Persons (Services, Consultation and Representation) Act 1986 and a number of other items of social legislation that need money spent on them—money which would be better spent on such provision than on giving it back to those who perhaps do not need it quite as much as those who need the services that are provided under the disabled persons legislation.
The Budget has not taken enough people out of taxation. If there was money available for reducing income tax levels—reference has been made to the position of nurses on low pay—the way to use it was to take out of taxation people on low pay who are paying income tax. In the Budget, £700 million has been used for that purpose, compared with £2,000 million for spreading it thinly over the standard rate of taxation. That can have an increased benefit for those who are on the higher rates and above the standard rates. The raising of the threshold should have been twice the level required by indexation. The Government had their priorities wrong in not doing that.
I want to take up one point with the Opposition. I found the speech of the Leader of the Opposition difficult to swallow when he criticised the Government because their taxation level was now higher than it was in 1979. I take the view — I was under the impression that Opposition Members generally did so, too — that we need high taxation to sustain the services that we perceive as being needed to help those who are most dependent on state services. We cannot have it both ways. We cannot criticise a Government for maintaining high tax levels if we believe that they, or even higher ones, are necessary to maintain the services that we need. We need to be straight on this matter. If we believe in services, we must believe also in the means of sustaining them. We must bite the bullet, and sometimes bite hard. The two sides of the House may have different views on this issue, but we must be consistent in our arguments. Most Opposition Members believe that priority should have been given to increased services, which would in themselves provide more jobs than will be provided by a reduction in the standard rate of income tax.
The Budget is something of a damp squib. It reflects a lack of vitality, vision and ingenuity. Certain commentators have referred to the Chancellor of the Exchequer's ingenuity. That ingenuity has not emerged today. I do not know why it is not apparent. There is a lack of content in the Budget. It gives the impression of a tired Budget that


has been introduced by a tired Chancellor. It is less than we were led to expect, and I do not understand why this has been allowed to happen, unless there was a change of course fairly late in the Budget development programme.
There has been the squandering of a massive opportunity, and the Chancellor of the Exchequer's incredible statement about the work force has brought that home. I find it difficult to accept that the policy of keeping the public sector borrowing requirement at £4 billion should be sacrosanct. The Government were talking only a year ago of a PSBR of £7 billion, and the difference of £3 billion could have been invested in infrastructure, including roads, hospitals and schools. Jobs would have been provided in taking that course.
I believe that we could live with a PSBR of £8 billion or £10 billion, but let us for the moment accept the £7 billion that the Government were working to only a year ago. That sum, together with the £2 billion give-away, could have provided many jobs and improved services. I know that those who will receive the benefits of the Chancellor of the Exchequer's give-away will appreciate them, and perhaps when it comes to voting, but our vital resources have not been used to the best effect.
Interest rates are running at about 11 per cent. at a time when inflation has been running at about 3 per cent. or 3·5 per cent. Interest rates are far too high and a real interest rate of 7 to 8 per cent. cannot be justified. There are difficulties for manufacturing industry. My background before coming to the House was on the finance side of it. If interest rates are running at about 11 per cent., manufacturing industry will be looking for a return of 20 or 25 per cent. before it takes a risk. Why should it take a risk when it can obtain good returns from money placed in secure investments?
The interest rates that have been running under this Government have been 10 to 10·5 per cent. on the one month rate. That compares with 4 per cent. in Germany, 4·5 per cent. in Switzerland, 5·5 per cent. in Holland and 3·5 per cent. in Austria. I realise that there are difficulties due to oil money movements, for example, but after eight years it should be possible to engineer circumstances in which the interest rate is substantially lower.
Perhaps the Government believe that a PSBR of £4 billion will be enough to start reducing interest rates. There is no evidence that that will happen, but I hope that that will be the result. Interest rates should be coming down to 7 or 8 per cent. if inflation is running at 3 to 4 per cent. Indeed, that must happen if we are to have a change of course that leads to significantly greater investment in manufacturing. It is critical to reduce interest rates, and not only for manufacturing industry, though that is important.
A reduction in interest rates is important for agriculture. Many farmers in my constituency extended their bank facilities to expand in the dairy sector only to be clobbered by the quotas that have been imposed. Many of them are being foreclosed by their bank managers and lower interest rates would be significant to them. In many instances it would make the difference between surviving and not. A reduction in interest rates would make a substantial difference also to home owners.
A high interest rate is no incentive for new ventures and enterprise. Nor is it a help to secure investment at a cost that can be afforded by the community to provide much-needed community facilities. In eight years in office the Government have not succeeded all that well with their

interest rate policies. I am not a supporter of a policy that plays into the hands of the money lenders and causes so many problems for the groups to which I have referred.
The comments of the economic advisers to the Government that appeared in the Financial Times yesterday have been referred to by those who have talked about jobs. It is worth putting on record a couple of parts of their letter. One passage read:
As Chief Economic Advisers to governments from 1947 to 1979, we are greatly troubled by the prospect of continuing high unemployment. We do not accept the widespread view that it is inevitable. On the contrary, we consider that much of the increase of 2 million in the number of unemployed since 1979 results from errors of economic policy.
The letter continues:
The time has come for a change of course. Realistic policies exist which could lead to a major return to work without exploding inflation. The Chancellor has a real opportunity to introduce a budget for jobs. Genuine and major reductions in unemployment should be the top priority for government policy.
It is easy to rubbish civil servants, including those who have been in post when other Governments have been in office. There are those who have been in that position over many years when both Conservative Governments and Labour Governments have been in office. There was the time of "You've never had it so good" in the 1950s and the period of full employment in the 1960s and early 1970s. £4,000 million or £5,000 million had been allocated in the Budget, that would have helped to create as many as 1 million new jobs, including 50,000 in Wales.
The needs of the elderly and the disabled are often catered for only in institutional care. These people could be looked after in their own homes if resources were made available to pay those who are available to do the work to undertake it. It may cost only £60 or £70 a week of additional public expenditure per person to trigger such a scheme, and the state is willing to pay £180 a week to maintain people in private residential homes, or £230 a week to maintain people in private nursing homes. Surely some money could have been made available to the domiciliary services to help the elderly and the disabled live in the community, and thereby increase employment.
In Wales there is a great need for housing. About 160,000 houses—about 14 per cent. of the housing stock —are unfit. At the same time, building workers are out of work. They want work but they cannot get it. Some schools are in an appalling condition and need maintenance. There are roads with holes in them. The rural roads especially are in a state of disrepair. The railways need modification and investment. Hospitals have increasing waiting lists. These are the problems within the community. At the same time there are those who are willing to work. They want to work and we are paying them to do nothing. We could pay them a little more to work, and that little more is the money that is being given away in a tax reduction. The Chancellor of the Exchequer should not have moved in that direction.
This will be a good Budget for the well-off. It will enable people perhaps to have a second colour televison set, a second new car, a second overseas holiday, a second pension or even a second home. Unfortunately, it will do precious little for the 3 million or more who do not have even a first job.

Mr. Tim Smith: I listened carefully to the remarks of the hon. Member for Caernarfon (Mr. Wigley)


about the Budget. It is in the nature of things that perspectives should vary fundamentally on the statement of my right hon. Friend the Chancellor of the Exchequer. I could not accept the hon. Gentleman's description of the Budget as either "tinkering" or "tired". I am genuinely enthusiastic about what my right hon. Friend had to say. He has introduced a remarkable and radical Budget that is wholly consistent with his three previous Budgets. I do not agree with the hon. Gentleman's assertion that it will do nothing for unemployment, and I shall explain later why I believe that to be so.
The hon. Member for Caernarfon said that we could have a PSBR of £7 billion, £8 billion, £9 billion or even £10 billion instead of £4 billion, and he then said that he wanted lower interest rates. The two objectives are not compatible. He complained about the Leader of the Opposition wanting it both ways, but so does he. We shall see tomorrow a fall in interest rates as a direct result of a major cut today in the PSBR for next year.
I agree with the hon. Member for Caernarfon that the Leader of the Opposition wants to have it both ways with regard to taxation. The right hon. Gentleman said that we should go back to having the reduced rate band. Obviously the right hon. Gentleman has forgotten that the reduced rate band was 25 per cent., and the standard rate of tax next year is to be only 27 per cent. Therefore, the reduced rate band would now only be 2 per cent. lower than the standard rate. Very soon there will be a reduced rate band, not for a few, but for every standard rate taxpayer. That is why this is a remarkable Budget. If we take into account the measures announced in the autumn statement and the Budget, we have witnessed a fiscal adjustment of £11 billion. In November an increase of £5 billion in spending was announced. Today, the Chancellor announced a reduction of £3 billion in borrowing and a reduction in taxation of £3 billion. This is a remarkable achievement and it underlines the strength of the British economy and the buoyancy of tax revenues.
There are three measures in the Budget that I believe will be particularly welcome. The first is the increase in the threshold for inheritance tax. When that was announced it was obvious that Labour Members felt it was some kind of give-away to the rich. I must tell them of one of my constituents, the wife of a retired teacher. This lady wrote to me the other day to say that she had noticed that the price of their modest house in Gerrards Cross must be between £120,000 and £150,000. That would be the price of a modest house in Gerrards Cross. The lady suddenly realised that, in those circumstances, when she handed on her estate to her son, half of it would be subject to inheritance tax. She is not a rich person —she represents the ordinary constituent. Such a position would have been faced by many throughout the south of England because of the huge price increases. Therefore, I welcome the change that the Chancellor has announced this afternoon.
The second attractive change is the introduction of what are termed "freestanding AVCs". This provides the opportunity for people who belong to occupational pension schemes to top them up by making additional voluntary contributions, not to that scheme, but to a personal, portable pension scheme of their own. At the moment such schemes are available only to those who are not members of occupational schemes. This change will

prove very attractive. I notice that the Red Book suggests that over 250,000 people will take up that opportunity, but I believe that many more will do so.
The third measure that I believe will be extremely welcome are the changes that are to be made in the administration of VAT for those businesses having a turnover of less than £250,000. Cash accounting will be the answer for those small businesses which have complained for so long about bad debts and late payers. They will no longer have cause for complaint, because they will not have to pay over the VAT until they have collected it from their customers. The threshold for this change was put at £100,000 in the consultative document, and the fact that the Chancellor has increased that to £250,000 is most welcome.
The new arrangements for annual accounting are also welcome as they give small businesses the opportunity to pay nine estimated amounts of VAT on account during the course of the firm's financial year. They will then make a final payment, together with one annual VAT return. That will do a great deal to help those small businesses which complain that they have to complete a complicated return once a quarter.
With the benefit of hindsight, it is clear that the year 1981—in particular the Budget of 1981—represented a major turning point for the British economy. It is clear that 1981 marked the end of 20 years of relative economic decline for Britain. At that time, the Government's critics said that their economic strategy, in particular the medium-term financial strategy, would not work. Indeed, a group of learned academics wrote to The Times to say precisely that. Since then the United Kingdom has enjoyed sustained economic growth of around 3 per cent. per year. Total output, manufacturing output and productivity have risen and 1 million new jobs have been created. All that has occurred because, in the depth of the recession, the Government had the courage to tackle the causes and not the symptoms of Britain's economic malaise.
As British industry has become more competitive, and consequently more profitable, so the yield from corporation tax has risen. As the standard of living of the British people has risen, so to has the yield from indirect taxation. Because of the buoyancy of Government revenues, the Chancellor was able to announce today a combination of lower direct taxation and lower Government borrowing. Some will say that he is a lucky man, but I say that the Government, by their unwavering economic policies, have created their own opportunities. The United Kingdom's economy has escaped from the vicious spiral of relative economic decline to a virtuous circle of soundly based economic growth. Today, the Government's critics say, not that the Government's economic strategy will not work—plainly it has done—but that it will not last. On the contrary, I believe that because it is soundly based it is much more likely to last than the failed expansionary policy of the past where a "go" was inevitably followed by a "stop".
The underlying strength of the economy is best demonstrated by its ability to withstand the seismic shock of a miners' strike followed, not so long afterwards, by a huge plunge in the price of oil. Two or three years ago lectures entitled "What will happen when the oil runs out?" were fashionable. Last year's Red Book showed that, at the time of the 1985 Budget, North sea taxes were forecast to be £13·5 billion in 1985–86. This time last year the forecast for this year, 1986–87, was £6·1 billion. It is


against that background of a huge fall in oil revenue that today the Chancellor was able to announce cuts in taxation. No wonder that today nobody asks "What will happen when the oil runs out?"—we already have the answer.
All the evidence suggests that the recovery is spreading from the south of England, through the midlands to the north, yet unemployment, even in the south, remains stubbornly high. Why is it that there are 4,000 people out of work in Slough, but at the same time there are more than 20 pages of job advertisements in the local papers every Friday? I believe that the answer to that question lies in a combination of lack of skills and lack of incentives. Therefore, it is most welcome that the incentive to work will be increased by the raising of tax thresholds and the reduction in the standard rate of income tax that the Chancellor announced today.
Now is the right time to set some economic objectives for the next period of Conservative Government and the next Parliament until 1991 or 1992. Those objectives stem from a desire to get the fundamentals right by removing obstacles to economic growth and job creation. I believe that they should be, first, the elimination of inflation altogether; secondly, a continuing reduction in public spending as a proportion of gross domestic product; thirdly, a balanced budget; fourthly, a reduction in the standard rate of tax to 20 per cent. and in the top rate to 50 per cent.; fifthly, British membership of the exchange rate mechanism of the European monetary system; sixthly, real interest rates equivalent to the world average; seventhly, increased mobility of labour, principally engendered by major deregulation of the Rent Acts and a corresponding increase in property to let; eighthly, continued support for the Scottish and Welsh Development Agencies and the creation of a North of England Development Agency; and, ninthly, continuation of the hugely successful privatisation programme involving the transfer to the private sector of, among others, electricity, coal and water.
We have come a long way since 1979. Many of the changes that have been made are irreversible. The benefits of today's Budget are the rewards for the efforts that managers and workers alike have made to modernise British industry by doing away with outdated work practices and investing in the latest technology. Once again Britain can compete effectively in world markets. That success has been hard won and the country will want to think carefully before it throws it all away.

Mr. Tom Clarke: Forced to choose between the descriptions of the Budget by the hon. Members for Beaconsfield (Mr. Smith) and for Caernarfon (Mr. Wigley), I believe that the Budget represented a statement by a tired Government and that the hon. Member for Caernarfon was right. It is appropriate to recall the words of Lloyd George — a Tory nation is a tired nation. If the Budget demonstrated that, the people will respond appropriately when, before long, they are asked to pass judgment on the priorities explained by the Chancellor and supported by some of his right hon. and hon. Friends.
The Budget did little to deal with the biggest problem that Britain faces — unemployment. It did little to remove the regional variations and the great gap between the most prosperous parts of the United Kingdom and

areas such as in my constituency where great poverty and deprivation are experienced and where people are greatly concerned about the Government's lack of leadership and about their complacency, which the Budget showed, which is clearly widely shared by Conservative Members.
I was distressed, as my constituents would have been, to hear the speech of the hon. Member for Cambridgeshire, South-West (Sir A. Grant), who referred to people being involved in the black economy. In many ways that represented an honest statement of his opinion, but I regret the fact that that is an oft-repeated view, as I know from talking with many people, especially in southeast England. It is a great myth and is patronising and unacceptable. The constituents of my hon. Friend the Member for Motherwell, North (Mr. Hamilton), who are fighting to save the Caterpillar factory, with massive support from the Scottish people, and who want to produce, sell and export their products, and who would have liked reasonable interest rates so that they could carry on with that objective are rightly offended when, by implication, they are told that their fight for jobs is a sham because they are dependent on the black economy to keep themselves going.
People in Lanarkshire and in my constituency have experienced closure after closure, from Cardowan to Gartcosh and at Buchanan in Stepps. There has been an exchange in the House on the Scottish whisky industry's future, which is of great interest to me. Alas, after the Buchanan closure, there will be no more jobs in that industry in my constituency. The men and women who have experienced unemployment and redundancy will not be attracted by the minor taxation changes announced by the Chancellor. For them, unemployment is total. The minor tax concessions given by way of window dressing have little attraction and show little awareness of the reality of the problems faced by those families.
The Budget is a clear indication that Kenneth Galbraith's words of more than 20 years ago apply even in 1987. He talked about the reality of
private opulence and public squalor.
We are seeing the "private opulence" in the fact that the Chancellor's concessions are bound to be better for the higher income groups. That is consistent with the Prime Minister's reply a few weeks ago to a question that I asked when she said that the top 10 per cent. of the people have enjoyed a great deal more prosperity since 1979 than have the bottom 10 per cent. We have seen the gap grow between the very prosperous and the very poor, those who have been caught in the poverty trap and who know what unemployment and destitution mean. The tragedy is that, given an opportunity in the Budget, the Chancellor has failed to respond to the problems that people are enduring.
The hon. Members for Gordon (Mr. Bruce) and for Caernarfon referred to the Disabled Persons (Services, Consultation and Representation) Act 1986. A few weeks ago I asked the Prime Minister whether she thought that it was right to withhold the funding that is necessary for that Act to become meaningful, while at the same time preparing for the type of taxation cuts that we have seen in the Budget, which I do not believe are right. Public opinion surveys suggest that the British people would prefer to ensure that public services are not starved of resources, that there is proper public investment and than our infrastructure makes us capable of being a manufacturing nation worthy of that name, reversing the current trend whereby we import more than we export.
In the light of this challenge, the Chancellor has dodged the two issues facing this nation. The first is wealth production. We must produce the wealth before we can debate exactly where the money will go. The second is the distribution of resources. We, in a modern, sensitive society, have to decide how best those resources should be distributed. On both counts the Chancellor has failed.
The Budget will not lead to increased productivity. It will not help our hard-pressed manufacturing industries, including those in my constituency which have suffered so much in recent years. If we do not produce to the extent necessary to satisfy our people's needs, of course the social services are bound to suffer, and the Prime Minister will be forced into the embarrassment that was so obvious at the Dispatch Box when she said, replying to me, that funding would be made available for the provisions of the Disabled Persons (Services, Consultation and Representation) Act when resources became available.
This afternoon the Chancellor found other means of spending money. He barely recognised the problems in the social services. Over the weekend, in my constituency, more than 400 geriatric and psycho-geriatric patients were removed at the shortest possible notice from the Woodilee hospital, a psychiatric hospital built in Victorian times. The staff went with them and many patients were sent some 5 miles or perhaps 10 miles away to another hospital because the health board was advised that their present hospital's structure was dangerous. However, some of the patients then found themselves in a new ward where the ceiling was falling in. The nurses and auxiliary staff who were with them, and who have done an excellent job, showed me pieces of asbestos that had fallen from the ceiling.
This is Kenneth Galbraith again—
private opulence and public squalor.
For how long will the British people tolerate these priorities? It is not enough for the Government to say that they are committed to the Health Service and to allow that sort of thing to go on. It is not enough for them to say that they stress community care, yet not give the social services the resources necessary to make community care a reality. It is not enough for the Government to ignore the plight of disabled school leavers and the demands of a modern education system.
How can we talk about jobs, industry, our manufacturing base and competing with the Japanese, the South Koreans and the rest if we are not investing in education? How can we accept a situation in which 5,000 young people with the qualifications to enter higher education are denied that opportunity? How can we cope with a system where access to higher education is so limited that only 1 per cent. of children whose parents had an unskilled working-class background are given that opportunity?
What we are seeing—and this is a theme that we noticed time after time in the Chancellor's speech — is the reality of the resources of this country, including the most important resource of all, the contribution that our people are capable of making, being tossed away. No Government have that right. It is not beyond the wit of a modern Government to ensure that our economy is organised and planned to give our young people the opportunity of enjoying the full potential of their capabilities and their interests.
This is a very short-sighted Budget. For the reasons that 1 have given, I regard it as selfish and cynical. If Lloyd George said that a Tory nation is a tired nation, I must tell the Government that I believe the people are becoming tired of these priorities, tired of this approach, tired of unemployment, tired of seeing resources, especially oil, being thrown away to finance 3 million unemployed, tired of the consequences for the social services, for health, and for the education system. I have every confidence in the people of this country, because they have made it clear —and will soon do so again— that the Government's priorities are not theirs.

Mr. Nicholas Fairbairn: The hon. Member for Monklands, West (Mr. Clarke) may have imagined that he was joining the hon. Member for Caernarfon (Mr. Wigley) in speaking for the Celtic fringe who, the hon. Member for Caernarfon claimed, regard this Budget as contrary to the interests of Scotland and presumably of Wales.
Perhaps, on St. Patrick's day, I may speak modestly for Scotland, which, I am glad to say, is north of the north-south divide, because the prosperity of the people of Scotland is infinitely greater than the prosperity of those who reside south of this mythical divide. The expenditure per head on education, on roads and on investment is massive. Our share of incoming industry is enormous. The success of the Scottish Development Agency, which we reorganised, is quite dramatic. We have a huge share of modern industry — a fact that the hon. Member for Monklands, West appears not to comprehend. The Labour party is consistently anxious to protect, to cosset and to contain industries of the past which are not relevant; it is not anxious to welcome the industries of the future which are. One of those industries is tourism, which has been highly successful in Scotland.
There have been some extraordinary speeches this evening. The official Opposition and the alliance have to find a way of saying that good news is bad news. They were robbed of their chance to say that the Chancellor had bribed the electorate, so they had to find some other way of alleging that the Chancellor has got it wrong. The thrust of their argument is that he should have reversed everything that has produced our present prosperity and economic strength by going back and investing the wealth of the nation in bureaucratic schemes. The reason why the Chancellor has been able to spend £11,000 million— I do not use this word "billion", because it is misunderstood —on the prosperity of the people of this country is his economic prudence. It is because we no longer have to spend it on loss-making nationalised industries, on so-called infrastructure, on all the things that lose money and build ever-increasing empires and can never be brought back again. It is because of the determination and the strength, essentially, of the Prime Minister and of the Chancellor that we have turned back from that inevitably downhill road in which taxation increased in order to support the ever-increasing claims of authoritarian bodies. That has produced a quite remarkable change. All the nationalised industries which have been privatised are in profit and now belong to the people.
I remember when British Railways, as it was called, was created. People genuinely asked if the railways now belonged to the people, which was their station, their


carriage, their buffet. Now these industries really do belong to the people and are profitable. British Coal is doing the same. May it be privatised soon as well.
I should point out that the oil industry, which everybody imagined, in nationalist terms, was a sort of succour provided by Scotland for England, provoked not a word of complaint when it suddenly lost its strength and when England had to give succour to Scotland. The succour has come for Scotland and it has come this afternoon from the Chancellor who has sustained an important British industry. We say thank you for that.
We say thank you also on behalf of small business. Hon. Members have not sufficiently understood the extent to which the announcement made this afternoon on the adjustment of value added tax and other matters will benefit small business. If every small business took on one more employee or found itself able to do so financially, as I believe after today they will, it would mean employing between 500,000 and a million people in realistic, productive work. People are saying that the Chancellor did not speak about unemployment. But this is employment: one creates employment by creating the financial ability to employ. One does not create employment by enabling local authorities, by gross, and thus inflationary, overspending, to take on more employees for schemes to mend Woodilee or any other hospital, and such like. Like the hon. Member for Monklands, West, I have been on the Select Committee on Scottish Affairs investigating hospital building in Scotland. One could not envisage public money being better wasted than by being thrown away on that.
The Scotch whisky industry is very important to England, to the French, to the Americans and to everyone else, except the Japanese. Its pleas and our imprecations have been heard by the Chancellor and he has held excise duty at its present level. One of the things that I have noticed, taking a quite impartial view of politics, is that those who vote Labour also consume alcohol. I can imagine nothing that the Labour voter—or the about-to-be ex-Labour voter—will appreciate more. For the first time, I believe, since the war — certainly in my political recollection — nothing has been added to the cost of a pint or of a nip. Employed or unemployed, if he goes to the races he will be pleased because he is not going to be charged tax either. That should be fairly popular.
In Scotland, nothing is more important than the cost of transport because we are a widespread community with two fifths of the land space of Britain and only one eleventh of the population. For all those in the agricultural, rural and business communities, the fact that the Chancellor has held the price of petrol is still the best sign of economic strength that we could have. All the rural communities will benefit.
We have an increased number of people owning their own property. A large part of their weekly budget is already spoken for by what they pay for their mortgage. Undoubtedly, the fundamental excellence of the strength of the economy which enables the Chancellor to say that we need to borrow no more than 1 per cent. and thus enable interest rates for farmers, house owners and small businesses to be reduced is a fundamental reward for the people of Britain.
I know that any reduction in tax is regarded as small and any increase in tax is regarded as great. I remember, as a student at university, a little Socialist lady who went to the same dairy as myself. She said, "There you are, you

Tories. Milk is up a ha'penny, threepence a week. Who can afford that?" I just had to agree that the price of milk had gone up. About a month later, I was in the dairy and again was able to say, "Right. Mrs. McLaren, you will be voting Tory today, because milk has gone down by a penny a pint." She said, "A penny? What's that?"
All the criticisms that it was expected would be levelled against the Chancellor—for example, that he was going to bribe the people of Britain—have not come true. It is not a give-away Budget. To allow one to have some pocket money back is not giving anything away. The state is increasingly being taken off the backs of the people. That means that in Scotland there are 19,000 more people in work now than when we came to office and in Britain 1·75 million more people are in work than when we came to office. That is the fact. Scotland is a vibrant new country, thanks to the economic policies of the Government and the courage of those who, when asked to waver and give money away to schemes and increase tax, bravely resisted. Of all those who were saying that, I notice not one in the Chamber tonight, and I have riot heard a voice of it now that the economic policy has proved so successful.
I believe that the Budget will do more for those who are not in employment than anything else. I regret one thing. The Chancellor did not remove one anomaly which, in my belief, would create a great reduction in unemployment. If a firm, a company or an individual employs people, the salary is paid before one pays tax. If an individual has a gardener or somebody to do up the car or whatever, he has to pay tax out of his already taxed income. That is what results in people going on the black economy. That is why an individual prefers to get pound notes in his hand for doing six people's gardens rather than being a gardener to one person who can afford to employ him. I believe that in this country there are probably between 1 million and 2 million people who are earning money without paying any tax on it and who are probably obtaining, unemployment benefit as well.
In Scotland, we welcome greatly not only the economic strategy of the Government but the Budget. It is sane, responsible, cautious and unflamboyant. If I may say so, it demonstrates, in the words of the Psalm, that we have created peace within our walls, and plenteousness within our palaces.

Mr. Stuart Randall: I want. to make a short contribution to the Budget debate.
I found the Budget statement a remarkable anti-climax. I must confess that as the Chancellor read out his statement I expected to see more smiling faces and more Order Papers being waved on the Government Benches. However, we saw very little of that. As previous speakers have remarked, one was left with the impression that something was missing. The comment has been made that. the Chancellor left a sheet on his desk back at No. 11 and that that contained the information that we were after.
Expectations were undoubtedly at a high level. The Budget had been hyped up by the media. Many of us—I know that this applies to Conservative Members—were expecting far more. I believe that it is a manifestation of the fact that we have a tired Government who have run out of steam. An election is imminent; we all know that. It is simply a question of when it will be. I believe that the Budget and the state of the economy will be important factors that will decide the date.
The first measure that I make of the Budget statement is what it does to alleviate poverty in Britain. Frankly, it does little if anything. That is one of the reasons—there are many others—why I am on the Labour Benches and not on the Conservative Benches. The Conservative party does not care about poverty. We have seen a remarkable increase in the number of people living in poverty —about 2·5 million—since 1979. The Budget was a great opportunity to do something about it, but it has totally failed. The Government are uncaring. They do not worry about the 6 million or 8 million people who live in that plight. Instead, they have had a taxation policy since 1979 of feathering the beds of the very rich. The statistics are quite clear. The very rich have done extremely well.
There are a few interesting questions. Many people have said that there is something missing, and I believe that that is true. We have heard only the Budget statement today and we have not had a chance to do the sums, but I cannot help feeling that there is about £2 or £3 billion somewhere which has not been used by the Chancellor.

Mr. Fairbairn: Quite right, too.

Mr. Randall: Perhaps the hon. and learned Gentleman knows.
I feel intuitively that the Chancellor had more money than many of us originally anticipated, but he has failed to go ahead and use it. Instead we have a Budget which adds up, as I understand it, to about £4 billion. The sales of the so-called family silver — the Government's privatisation programme this year, involving British Gas, British Airways and so on—amount to about £8 billion. I find it remarkable that the figures do not seem to add up. Where has the money gone? Perhaps other right hon. and hon. Members would like to comment on that. I am not sure where the money has gone. In particular, the incredible consumer boom and the associated tremendous demand must have considerably enhanced the Chancellor's revenue. I do not know where that money has gone, either.
I sum up the Budget as a missed opportunity. The hon. Member for Beaconsfield (Mr. Smith) regarded it as a radical Budget. Far from being radical, it is a quite unimaginative programme that does nothing to alleviate poverty, for getting industry up and going again, or for improving the infrastructure. From that point of view, I find the Budget disappointing.
What is particularly interesting about the Budget is that the choices that will go before the electorate in the next few months, or whenever the election is, have been starkly laid out. The Government have put their wares on their stalls. A few other things will be on the way later, I am sure, but the Government have put out their stall. It involves a reduction in the basic tax rate to 27p and the other matters that the hon. and learned Member for Perth and Kinross (Mr. Fairbairn) eloquently listed, but that is it. The next few months will involve putting our alternative case. If Conservative Members read the case that was presented —I accept that one or two little things happened last week to prevent it from being made as well as we should have liked — they will see that there are many opportunities. The challenge now is to get over to the public what I regard as the jewel in our crown. It will result in the next Government being a Labour one.
I am concerned about the general state of the economy. The fact that the boom has been allowed to rip ahead and the fact that the Chancellor has accentuated the matter by creating more demand through the tax reduction seem to be most unwise. I am not sure how much more the economy can take. Over the past year, there has been a growth of about 25 per cent. in consumer demand, and to stoke it up even more worries me. It is a difficult matter to assess. We have not seen the various computer model runs, so we do not know what the parameters are.
The strategy that we are putting forward and what we shall put on our stall over the next few weeks and months had the support of four eminent political advisers in their letter to the editor of the Financial Times yesterday. One cannot disregard that kind of comment. I am sure that those eminent economists were sincere in what they said. They do not write such comments lightly. The way in which I interpret what they said is that the growth in the economy is insufficient to offset not only the increases in productivity over the past few years but the growth in the number of people in the work force. To get people back to work, it is necessary to have higher rates of growth. That would ensue from the kind of capital programmes that we have been suggesting. The four political advisers believe that, properly targeted, it would not be inflationary. None of us wants inflation to go up. We all want to make sure that we operate the economy in a sensible way.
We should think about poverty in this country. I do not like the notion of a divided country; it is wrong. I cannot understand how some Tories these days allow that kind of thing to go on—it never used to. The old type of Tory used to have much more respect for people who live in poverty, but nowadays the poor are discarded like litter into a dustbin. The Tories just do not care at all.
The Budget statement has done nothing about the long term. It is the best Budget that the Chancellor could come up with. He has not interfered with excise duties. It is almost convention to valorise all excise duties with regard to the rate of inflation. Clearly, that is done for vote-catching reasons, and we understand that. I hope that we shall be able to get over to the public—I hope that it will be discussed in the media over the next days, weeks and months — what the Government are doing in disregarding the long-term economic interests of the country. It is absolutely clear that the industrial base must be regenerated. It is inconceivable that the Government can continue their policy of privatisation and rely on oil revenues. We know that oil revenues are in decline and that privatisation cannot continue. It is inconceivable that the British economy can run on ad infinitum without regenerating our industrial base.
We have to get industry going. The programme that we announced last week will do a tremendous amount for the private sector. I do not want Conservative Members to say that we shall have funny little jobs or invented jobs. We shall not have them. They must be well thought through, reliable, real jobs. There will be none of the nonsense-type job. I would not support that sort of thing. It is important to get industry going and to get our infrastructure into good shape. That will create tremendous demand, get people back to work and help to overcome poverty.
Also, we must have good quality services in our hospitals to ensure that policies such as care in the community are properly financed. It is important that we train young people for real jobs so that we may properly


support our manufacturing industry. There will be no nonsense-type jobs or scheme-type jobs, but jobs that will enable us to ensure that our industry, when it takes off, will not have the present skill shortages. Hon. Members are aware that we have a chronic shortage of skills.

Mr. James Couchman: Does the hon. Gentleman say that the work experience schemes that the last Labour Government introduced to massage unemployment figures represented real jobs or training for real jobs? Does he agree that a two-year youth training scheme leading to a genuine qualification, which is a pre-qualification to further skills training, is a much better scheme than that which the last Labour Government introduced?

Mr. Randall: I do not particularly wish to talk about what happened eight or 10 years ago. Conservative Members said that they would get everybody back to work. We all know the leaflets that stated that Labour was not working. The Conservative party was dishonest with the people. It intentionally created high unemployment. We all know that there is nothing about the Government's economic policy that will do anything substantially to reduce unemployment.
There are two avenues down which we could go. If we spent money on reducing taxation, £3 billion would create about 80,000 jobs. However, if £3 billion were spent on the policies that are advocated by the Opposition, about 300,000 jobs would be created. A sensible expansionary programme requires people who are skilled in high technology and in all the areas that are necessary for the implementation of that programme. It' we cannot train people to do those jobs, there will be bottlenecks in the economy and they will constrain growth.
I am concerned about Kingston upon Hull. When I listen to debates like this, I believe that we should brush aside all the dross and ask what is being done for the people I represent in Kingston upon Hull, West. The people I represent will get very little out of this Budget. Kingston upon Hull is a very proud place, and I am proud to be one of its representatives. There are lovely people there, but there is a great deal of poverty and despair there.
The housing in Hull is appalling. The hon. Member for Brigg and Cleethorpes (Mr. Brown) knows Kingston upon Hull. He is on the south side of the river. He knows that in Kingston upon Hull people are living in houses with fungus crawling up the walls. [Interruption.] I am not overstating the case. The houses are damp. People are suffering from lung ailments. Children have to live in these conditions. I was appalled when I listened to the speech of the hon and learned Member for Perth and Kinross (Mr. Fairbairn). He glossed over the problems in the north. He dismissed the problems that are caused by poverty and ill health and put it all into pounds, shillings and pence terms.

Mr. Fairbairn: rose——

Mr. Randall: The north-south divide that is referred to so often in the newspapers does exist. It is appalling that we live in a country that is so divided.
On Friday night I met some people in my constituency who run a small guest house for young people who cannot find jobs and who have had difficulties in the past. I was told that when an official went to see them and a young man was introduced to him he was described as a lovely young person, but they were told that he is nothing. That

young man thinks of himself as nothing. He thinks that he is completely unwanted. That is the kind of people that we have in our society today. [Laughter.] Conservative Members laugh. That is the difference between Members on this side of the House and those on the Government side. It is appalling that anybody can laugh at what I have said. Nevertheless, we have had to put up with that kind of reaction, and we shall continue to put up with it.
The Budget amounts to a lost opportunity. The regions have gained nothing. Pensions, student grants, education and pre-school education have been neglected. Nurses, the disabled, the homeless and those who live in poverty have also been neglected. Manufacturing investment is still 17 per cent. below what it was in 1979. The Budget is a great disappointment. It is bad for the people whom I represent, and it is bad for this country. It is symptomatic of a tired Government who have run out of steam and imagination. I hope that it will not be too long before the British people are able to make their decision on this Budget and vote this Government out of office.

Mr. John Stokes: I listened with great interest to the deeply felt and most sincere speech of the hon. Member for Kingston upon Hull, West (Mr. Randall). I deeply resent the fact that the hon. Gentleman said that Conservative Members do not care about poor and ordinary people. I represent much the same sort of people as those who live in Kingston upon Hull, but we do not hear from them the self-pity that we heard from the hon. Gentleman. The west midlands have also been through very bad times.
The hon. Gentleman thinks that the answer to all our problems is state intervention, but for years this Government have believed that the answer to this country's ills lies in helping ordinary people to help themselves by building up their own businesses. That is the profound difference between us. I do not say that the hon. Gentleman is insincere in what he says about people, but I wish that he would not say it about me. I am not a young Tory; I am an old Tory. [Interruption.] I did not hear that. Does the hon. Member for Thurrock (Dr. McDonald) want to intervene?
The Chancellor deserves to be congratulated on his Budget. It has taken the Opposition parties by surprise. They cannot find in it very much to attack. [Interruption.] Does the hon. Member for Kingston upon Hull, West want to intervene?

Mr. Deputy Speaker (Mr. Ernest Armstrong): Order. The hon. Gentleman should continue with his speech.

Mr. Stokes: We have already heard from my hon. and learned Friend the Member for Perth and Kinross (Mr. Fairbairn) and from my hon. Friend the Member for Beaconsfield (Mr. Smith) about the great difficulties that were experienced during the slump between 1979 and 1983. The 1981 Budget had to be severe, but it was the start of a new direction for our economy. Because of the economic problems that we have had to face since then, people can hardly believe that we are on the way to a recovery that can be sustained. That is new in this country's history since the last war. People are already forgetting about the great cost of the Falklands war soon after we came into Government, about the sinister and quite unnecessary miners' strike and, more recently, about the big drop in the


price of oil which so greatly affected Exchequer revenues. Recently another big strike collapsed at Wapping. Labour relations almost everywhere are now excellent. In many factories in my constituency there is great realism on the shop floor. Those people show much greater realism than does the hon. Member for Kingston upon Hull, West.
British industry now has so many things going for it that I wonder why Opposition Members do not admit as much. The pound sterling is very competitive. Our goods are better designed and our marketing and sales practices are much improved. There is greater export penetration and low inflation, and productivity is higher than it is in many other countries. For the first time we are now able to compete fearlessly with Japan, the United States of America and Germany. Profits and dividends are good and prices are high on the stock exchange. All this good news is hard for some people to understand. The Opposition parties are in a quandary. They do not know whether to pretend that there has not been a recovery or to say that if there has been a recovery it will not last.
Today we have heard a great deal about poverty. Poverty exists to some degree not just in the north and in the midlands but throughout the country. However, if we take a general view of the country, and are quite fair about it, we see that the standard of living of most people has never been higher than it is now. Despite the pockets of unemployment and the tragedy that unemployment causes, people generally have never been so prosperous as they are now. One has only to look at the number of cars on the roads, or, at the weekends, at the enormous numbers of people who visit garden centres.
I am amazed at the numbers of people who, many for the first time in their lives, are taking package tour holidays. Pay packets are good for those in work, and in many households, especially in the west midlands, the wife is bringing home a welcome addition to the income. There is recovery and renewed confidence even in the west midlands, where industries suffered so severely. Exports are doing particularly well. Nothing pleases me more than to go into the packaging department of a mill or small firm and see packages marked for countries all over the world, yet we do not hear enough about that.
Our exports are tremendous and will improve. In my constituency the well-managed companies are doing well and are composed of sensible managers who backed the Government in the difficult days and never complained during those hard times. I never asked for special things for my constituency, as Opposition Members are always doing.
I believe that interest rates will come down very soon, and I still wish that the banks would do more to help small businesses. Bank profits are large and their lot is easy compared to that of industry, which has to fight for markets and cope with so many problems. The banks do not have those difficulties.
Another problem that my firm has had is the high rates imposed by the new Labour council. I therefore welcome the cuts in income tax. I am a member of the General Synod of the Church of England, where tax cuts like these are not popular. I believe that there is nothing morally wrong in the Chancellor taking a little less money from us. We can then decide ourselves whether to spend the money, to save it, or to give it away.
The growth given by the Budget to charity is most encouraging. I believe that this is real Christianity as opposed to compulsory taxation, which makes some people feel good. The Government are still devoting large sums of money to defence, which is absolutely right in contrast to what the other parties would do it they were in government, and increased sums are also going to health, social security and education. No Tory would wish it otherwise. However, in all those services we need better management and less waste.
More and more people are becoming share owners, and they obviously enjoy it. This makes it more important that the small amount of fraud in the City of London, especially in the insurance world, should quickly be detected and punished. We, and particularly the Opposition, are in danger if we think that the solution to every problem is to spend more taxpayers' money, when very often what is needed is better leadership and better men and women involved in the activities of organisation and management.
Many people seem to think that instead of tax reductions there should be more public spending, but public spending is already high — some say very high. More spending on infrastructure, for instance, would not produce many more jobs. I believe that the answer to our problems lies in having highly efficient industry and commerce that will produce wealth and spread it to all corners of this country and to all sorts and conditions of our people. That is what the Government have been trying to do over the past years and now their strategy is starting to pay off. Opposition Members cannot understand that.
Tax reductions are required at the bottom of the scale. I wish that there were tax reductions at the top of the scale, but that has not happened in this Budget and we must look forward to that next time. Tax reductions at the bottom and middle of the scale will increase demand and encourage those who work and who want to work. I welcome the 2p reduction in income tax—not too much and not too little. I welcome the expansion of help for pensioner arrangements and the further aid for charities. I welcome the improvements that have been made in the VAT arrangements for small firms and in the inheritance tax, and the further help for vitally important training schemes. I welcome help for the blind and the over-80s. I believe that the Chancellor is right to hold the PSBR at £4 billion.
The newspapers say that we shall soon have a general election. Fortunately, the date is chosen by the Prime Minister and not by the newspapers. When the election does come—and I do not see any particular hurry for it — I am confident that the voters will think carefully before jettisoning all the improvements that have been made by this Government for the dangerous and inflationary policies of the Opposition parties.
This afternoon we have heard a great deal about a tired Government. I think that this Government are full of vigour. The Prime Minister certainly has immense vigour. As for people wanting a change, we cannot pay too much regard to the polls, but, dash it, the Opposition are now lying nine points behind. Other critics are saying that our society is becoming not so much full of poverty as materialistic. Those critics are usually very well off themselves. I am glad that our children are well clothed and well shod and are looking so fit. I am glad to see people owning their own homes, with a good supply of gadgets in the kitchen to save the housewife so many


chores. I am glad to see so many families with a car and a telephone, some savings in the bank and taking a holiday on the Costa Brava. That was not so when I grew up as a boy before the war.
Over 100 years ago Disraeli, a great Tory, said that the job of the Tory party was to improve the condition of the people. That is exactly what we have done and are doing. The whole trend of the Government is to keep the state off the backs of the ordinary people. That, in turn, gives us more freedom and more responsibility and must lead to more respect for others and greater love of our country.

Mr. Stephen Ross: The hon. Member for Halesowen and Stourbridge (Mr. Stokes) said a number of things with which I agree and others with which I profoundly disagree. The hon. Gentleman painted a very glossy picture of Britain. There is no doubt that a lot of people, whether in a family enjoying two incomes or not, have never had it so good—to use a well-known phrase. What happens when we finish selling off the statutory authorities by privatisation — presumably including the water and electricity authorities? What happens in the 1990s when that pot of gold has run out and we have a huge deficit of manufactured goods, which is growing all the time?
Is the hon. Gentleman aware that the younger generation are living on puny wages? Two of my sons qualified in agriculture but are not working in the industries in which they can use their degrees. One son is selling furniture on the second floor of Peter Jones in Sloane Square; the other is running a bakery. They are picking up £100 a week if they are lucky, and they are in their late 20s and early 30s. There are a lot of people like my sons.
Many of the younger generation cannot buy a house and have no chance of even trying to buy one because they are not earning enough money. Those are the people I am worried about. So many institutions and building societies are taking the easy way out. The Prudential has gone into real estate agency and taken over my old firm which has been established for over 200 years. This is the easy way to make money. The institutions are not putting their money into industry or creating the jobs or wealth that this country so desperately needs.
I know that the Minister has small business interests at heart. I wish to dwell on that subject, but I do not intend to delay the House. What does the Budget do to help Britain succeed in an ever more competitive world? In particular, what does it do for my constituency? The hon. Member for Halesowen and Stourbridge goes to the Council of Europe, as I do. I ask him to look around the streets of Strasbourg. What do we see that is British? Precious little; we may see a few Minis.
I was in Dallas the other day with the Select Committee on Transport. I said to some of my colleagues, "A fiver if you see a Lotus car here", because I understood that the Prime Minister's son was the Lotus car salesman in Dallas. We saw a few Jaguars and the odd Rolls, but we never saw a Lotus. I am told that there are some in north Dallas. I do not wish to be rude to the gentleman concerned, but I did not see any.
I did not see much else that was British. I went into the craft shops in Dallas to try to buy something to bring back, but everything was made in Korea, Japan or Taiwan. That is another problem that we all face in the West. What are

we to do about it? My main problem is worrying about my constituency and the role that the Budget will play there, but I have to say that it does riot do much for my electors.

Mr. Butterfill: Does the hon. Gentleman know that our trade with north America, which was in deficit by £686 million in 1974, was plus £2·4 billion last year? Does he understand the difference in those statistics?

Mr. Ross: I was not complaining that British goods were not being exported, but I did not see many. I was talking largely about goods in shops. I am told that probably oil revenues come into that calculation. That is another worry. What will happen when the oil is finished? When the oil price shot down to $8 a barrel we were in desperate trouble. The pound went down to £1·10 against the dollar.
The West has a problem because of the amount of goods coming from the far east. America is swamped with them. If they introduce tariffs, that will affect our exports. They have already tried it with steel and similar goods and they nearly did so with spirits.
The hon. Member for Stamford and Spalding (Sir K. Lewis) rightly said that the Budget was too cautious. It is not a vote-seeking Budget. I think most Opposition Members were surprised at that. I do not think that it is an election Budget. My complaint is that it is unimaginative.
What does the Chancellor intend to do to create wealth? We must get more wealth from the resuscitation of our industrial base if we are to pay our way and afford the pensions and the health services that will be necessary in the 1990s. That must surely be the principal aim of any Government. There may be some relief from the small fall in interest rates which we are promised by Conservative Members. Hopefully, we will see tomorrow a drop of a half of 1 per cent. in interest rates. The Chancellor has been cautious. I acknowledge straight away the welcome help in the payment of VAT. Those are the only two glimmers of hope that I see in the Budget for the small manufacturer.
One of the greatest tragedies of this Administration has been the breakdown in trust between central and local government. In his latest book, the right hon. Member for Henley (Mr. Heseltine) advocates the establishment of various centrally appointed development boards and a strengthening of the role of the Department of Trade and Industry. Why did he not support the National Enterprise Board when it existed? It was a first-class state organisation and I was sorry when it was abolished. Apparently the right hon. Gentleman wants to put something similar in its place.
The only way we will eventually succeed in creating the new enterprises which we so desperately need is through local initiatives. I can claim a little experience in this sphere. Since I have been in the House I have established three small businesses. I am fed up with bank managers telling me how big my overdraft is and sending me Christmas cards saying, "I hope you will have a successful and prosperous New Year"—underlined three times—followed by "I would like to remind you what your limits are." I employ people in those businesses and I know some of the problems of running them.
The Under-Secretary of State knows, because he helped enormously with it, that I set up and chaired for four year


an enterprise agency. Through his efforts, the Government came to appreciate the role of enterprise agencies and in a recent Budget some assistance was given to them.
I play a small part in a recently established development board. We persuaded our retiring lord lieutenant to chair that for no payment and we are grateful to him. It is doing a great job. It is manned by representatives of the public and private sectors and receives limited contributions from local government and the private sector. We are there to try to encourage new initiatives, to establish the seedcorn, to help local firms over temporary problems, to encourage good marketing, and to assist people like Richard Noble, who won the world land speed record, with the development of his Super-Two light plane.
Until recently that project employed 80 of my constituents. Because we are not an assisted area, we do not get Government help for such projects. People like that make their way to me. Richard Noble came to me in the House. He said that he wanted to set up light aircraft manufacture in the Isle of Wight; he asked what I and the local people would do to help him. I went to local government and to the development board and we did help him. The help came from local government and local initiatives. The chairman of the board was also able to help enormously through his contacts in the City.
We provide finance for trade stands, both within the United Kingdom and at foreign fairs, and we help firms with travelling expenses and so on. We help them to provide suitable advertising material to present to the public. We help deserving firms with the cost of essential machinery from time to time. We have to do something about our tourist industry, which is down 25 per cent. since 1979. The local authorities had to bail out the Isle of Wight tourist board, which went bust over a year ago when it got caught up in sponsoring a song festival which was an initiative to get people to come to the Isle of Wight out of season. But it did not work and the tourist board finished up with debts of nearly £200,000. Much more could be done by local government if we had a little more help from the centre. It is to local authorities that people constantly turn for funding.
We have just lost our last abattoir in the Isle of Wight. For an island of 122,000 people, that abattoir had a throughput of 300 sheep, 300 pigs and 60 to 70 cattle a week. It suddenly closed, and we are in desperate trouble. Hon. Members can imagine the cost of sending cattle across the water to Salisbury or Wimborne, or even further afield if they are casualty animals. It is a very expensive enterprise. I pleaded with the company, but there is no way that it will reopen the abattoir. The National Farmers Union had a meeting and says that we must have a feasibility study. It wants £2,500 to pay for the study. It can find £500 and it wants another £2,000. The letter is on my desk now. Again, the only people we can turn to are the development board and the local authority.
I want to see a far more positive approach and more confidence shown in the authorities which are taking a lead in assisting local enterprise. When I was the leader of the county council, we set up a scheme whereby we undertook to pay a premium of £25,000 a year to the bank known as the Three Is so that it could underwrite bank loans and make advances to industry on the Isle of Wight at a rate some 3 per cent. below bank rate. I think everyone

has agreed tonight about the effects that high interest rates have on small industry. About half a dozen firms a year have taken advantage of the scheme which we set up.
I should like to see a similar national scheme. That would be worth while. I am not suggesting the establishment of municipal loans; we have to use the banks. But I am sick of the attitude of some banks. The National Westminster has just shown a profit of over £1 billion, yet it charges 55p to cash a cheque, which is steep. It is always putting on other charges. The banks are not as helpful as they should be. They are the financial institutions which we should use. If we had a scheme whereby local authorities were aided through the rate support grant to encourage local enterprise, we could help small industries to do a great deal more. They are faced not only with high interest rates and bank charges but with the charges of British Telecom and accountants' fees, which are not cheap; and transport costs, rates, gas and electricity all have to be met.
Life is rarely easy for the small business man. I am glad that the Under-Secretary of State for Employment is on the Government Front Bench because I know that he has done a lot for the small business man. However, we have not dealt with the real problem, which is money. We must do more to help, and the Budget fails totally in that respect.

Mr. William Powell: As the hon. Member for Isle of Wight (Mr. Ross) emphasised, we are bound to consider the Budget in the context of what is happening in our constituencies. I will assess the Budget by that yardstick. As so many hon. Members will know, my constituency has been through the eye of the storm and is emerging very successfully from that storm. The Budget will undoubtedly further assist in the process of recovery in Corby and east Northamptonshire.
The world did not begin in 1979, as so many Labour Members like to emphasise. It began long before that. My constituents ruefully recall the fact that some 13,000 of them were condemned to lose their jobs without any preparation for the future as a result of a decision taken by the previous Labour Government. When the hon. Member for Kingston upon Hull, West (Mr. Randall)—who has left the Chamber now—speaks about poverty, thousands of my constituents recall the fact that their poverty, which has been appalling in the past few years in many cases, was inflicted upon them by the conduct of the previous Labour Government who knew that the steelworks was to close by the end of the 1970s but made no preparation for what would happen after the steelworks closed.
The Labour Government knew that the steelworks was to close because they knew that the quality of the local iron ore was diminishing and could no longer be sustained for steel production. The decision had also been taken to concentrate on the great five steelworks of Ravenscraig, Llanwern, Port Talbot, Scunthorpe and Redcar. They knew that the consequence of that would be to condemn every small steelworks in this country to extinction. That has happened at Shotton, Ebbw Vale, Consett, Corby and elsewhere. My constituents recall what happened in those days. When they hear Labour spokesmen talking about poverty as though it was something that has just emerged under this Government, they know perfectly well that that is a load of balderdash.
My constituents in east Northamptonshire also recall the storm which the boot and shoe industry has suffered in the past few years. Employment in that industry has halved because of the neglect for so long to build up the profitability of our firms, or to encourage an open trading system that would enable them to trade successfully. My constituents will therefore welcome the overall economic context of the Budget, the high and growing productivity and the most successful productivity record of any major country in the western world.
My constituents will welcome the fact that inflation is low and, as a result of the Budget, will fall lower. There is no doubt that because of the decision of my right hon. Friend the Chancellor not to valorise excise duties and because of what may happen with interest rates, inflation will drop still lower. As a result, growth is likely to remain buoyant and top of the league of western countries. The overall economic context is favourable and my constituents will benefit from that during the forthcoming year.
My constituents will also welcome individual measures announced in the Budget. Every small business man in my constituency will welcome the VAT measures. They will be of immense benefit to the local economy, to encourage confidence, and more people will go into business. The proposals in relation to profit-related pay will also be welcomed by many firms in my constituency.
Twice in the past three years I have had to propose a new clause to the Finance Bill abolishing on-course betting duty. I welcome the fact that I shall not be required to do that this year. It has come as something of a surprise to me that the Chancellor has yielded to pleas in that regard at this stage and I welcome the fact that he has done so in Cheltenham week.
I also welcome the changes that have been made to inheritance tax. Although no comment has been made about my next point so far in the debate, I welcome the modest but important proposals in relation to the friendly societies. Some hon. Members— although I cannot see any of them present in the Chamber now — will remember the hours of debate on friendly societies in Committee on the Finance Bill in 1984. We discussed friendly societies at considerable length then and considerable unease was expressed by Conservative Members in the Committee about the new proposals which the Chancellor introduced. The new measures that the Chancellor has announced today will be widely welcomed.
One point which has not received the emphasis that it merits and deserves this evening is the excise proposals with regard to petrol and fuel. The commerce in my constituency is carried around this country and abroad on lorries. There is no doubt that the decline in the oil price gave the road haulage industry an advantage which it was anxious should be sustained and should not be knocked by a renewed increase in duties on petrol fuels. In Irthlingborough. Raunds, Thrapston, Oundle, King's Cliffe and Corby tonight, my right hon. Friend's decision will be widely welcomed by the road hauliers who have become a booming section of the local economy.
My hon. Friend the Under-Secretary of State for Employment is on the Front Bench and he knows the way in which Corby has recovered in the past few years. It has recovered in part because of its extremely favourable location. It has a more favoured location for investment than any other assisted area. It has also recovered because

of the Government's policies. One of the crucial policies which has enabled the recovery to take place is the 35 per cent. corporation tax. That has not been underlined enough in this debate. The decision to have the lowest corporation tax of any western Government is a major help in attempts to attract inward investment to this country. Substantial inward investment is taking place in my constituency from north America, the continent of Europe and elsewhere. That is becoming a major boost to employment. I welcome the extra stability that my right hon. Friend the Chancellor has been able to announce in that regard today.
It is also worth emphasising the fact that the tremendous growth which is occurring all the time in my constituency, which is brought about by location and central Government policies, has been encouraged and welcomed by local authorities in my constituency. There are two authorities in my constituency, one Labour-controlled and one Conservative-controlled. I do not mind —I have frequently done so — paying warm tribute to the way in which the local authority in my constituency has been determined to work with the Government to try to get the maximum to ensure that the reputation of the area is as high as it conceivably can be. All that has contributed. One can contrast that responsible attitude, of working with the Government adopted by the Labour council in my constituency, with the attitude that is adopted by some other councils, which has done irreparable damage to the reputation of their communities and made it so much more difficult to galvanise the local economy. That needs to be underlined.
I take up the theme used by the hon. Member for Kingston upon Hull, West. I am sorry that he is not here. He is a man whom I hold in great regard. I have listened to him for many hours in Committee on other Finance Bills and I know that he is utterly sincere in what he says and is anxious to do the best that he can by his constituents. I wish him every success in that.
At the root of the poverty—there is real, grinding poverty that cannot be ignored in my constituency today, even though we are bouncing hack from the worst — there are two causes. The first is the absence of skills and the second the absence of incentives. The Budget has to be seen in the context of various other major statements of Government policy that have been made in recent months, beginning with the autumn statement, through to the employment initiatives. My hon. Friend the Member for Rossendale and Darwen (Mr. Trippier) is here and has close responsibility for those initiatives. Taken together, they add up to an immensely important package of developments in Government policy.
As my hon. Friend the Member for Beaconsfield (Mr. Smith) emphasised, the fiscal adjustment for this year is no less than £11 billion. I can understand that some Labour Members have found themselves rather floundering about and short of words because they thought that this would be an election bonanza and they have found that the hype in the newspapers has turned out to be entirely unfounded. That fiscal adjustment is dramatic and is the biggest one that has been possible for any Chancellor of the Exchequer in modern times.
Let us emphasise that the most important single element in the fiscal adjustment that is being made for the coming financial year is increased Government expenditure. When we hear people saying that they want extra services before income tax cuts, we have to remember that


they also want income tax cuts. Hon. Members will recall that yesterday a BBC poll showed that no less than 81 per cent. of the country wanted cuts in taxes, but also wanted increases in services. Next year, the Government are planning to spend no less than an extra £5 billion or so. That is the biggest single ingredient in the fiscal adjustment, and will have an impact in Northamptonshire as it will have elsewhere.
The bottom line is that, if we are to eliminate, as we all want to eliminate, poverty in this country, we have to face the fact that we still have a work force that in certain respects lacks the skills that are required for the future and we still have an economy that does not give sufficient incentive, particularly to the unskilled, to get work.
There is one message that all of us have to try to hammer home to every one of our constituents, especially every one of our young constituents. It is that there is no future in a lack of skills. The part of the work force that is most at threat is always the unskilled person, so in dealing with the increase in Government expenditure for next year we should mention that the education budget is to rise by no less than 18·6 per cent. That is a substantial increase in public investment in a major sector.
The skills will come about through the activities of the MSC, for which my hon. Friend the Member for Rossendale and Darwen has some responsibility. In my constituency, school leaver after school leaver is able to go through training into permanent new jobs, jobs that will take them away from poverty for ever as long as we are able to continue to pursue sensible and prudent policies that take account of the many aspects of economic life in this country and do not get out of context any one particular element.
My constituents will welcome this evening the measures that my right hon. Friend the Chancellor of the Exchequer has proposed. They will note that those measures have been welcomed in wide and differing parts of the country —from Essex, from my hon. Friend and neighbour the Member for Stamford and Spalding (Sir K. Lewis), from Buckinghamshire, Uxbridge, the west midlands and Scotland. No doubt what has been said will be underlined by others of my hon. Friends. Throughout this country, there will be a wide welcome for a sensible Budget.

Mr. Geoffrey Lofthouse: The hon. Member for Corby (Mr. Powell) will understand if I do not follow him down his path. I notice that he did not mention Yorkshire and Humberside in giving the Budget a welcome.

Mr. Michael Brown: I am here.

Mr. Lofthouse: I apologise if the area has been mentioned earlier, but the hon. Member for Corby did not mention it.
I wish that I could share the enthusiasm of the hon. Member for Corby. There is a different picture in Yorkshire and Humberside, especially in the mining communities. It is about problems there, rather than party political points, that I shall speak in the few minutes at my disposal. The Budget has achieved a widening of the north-south divide. The people who will benefit most from tax

relief and inheritance tax relief will be, on the whole, living in the southern part of the country. That being the case, there is no joy for areas such as mine in the north.
Where has all the money gone? What about the money from the sale of the family silver, as the late Lord Stockton called it? An income of about £8 billion was generated from the sale of British Gas and British Airways and from the sale of land and so on. Such money has not gone to Yorkshire and Humberside. Since 1979, for every four production jobs lost in the region, only one has been replaced from the service sector. There has been a rapid rundown in employment in Yorkshire and Humberside.
In the mining industries, we have seen very little capital investment. In the Castleford travel-to-work area, 24 per cent. of those unemployed are under the age of 24. Many of these people have never worked since they left school. Many of the males would normally have gone into the mining industry, but unfortunately there are no jobs there for them to go into. These people will not benefit from the tax cuts or any Budget decisions. This is pure fact and not a political point.
In my own area, since the miners' strike—I do not want to dwell too long on that because it gives me too much pain—about 7,000 jobs have gone. I am referring to the Castleford travel-to-work area in which about 3,000 supporting jobs have also gone. If I am able to assess the information that we in the Energy Select Committee received on the mining Estimates, I expect that there will be many more such job losses during the next three years, and they will not be cushioned by the redundant mineworkers payments scheme. There will be no weekly pensions for those miners, as there have been before this month. Therefore, the local economy will take a further bump.
Time and time again, we have made approaches to the Minister in an attempt to get him to assist those areas which have lost their staple industries. My area has never been one for the small businesses to which the hon. Member for Corby referred. It has had two staple industries, mining and glass. Both have nearly been wiped out without any other industry being put in their place. Since the miners' strike and the loss of those 7,000 and 3,000 jobs, British Coal Enterprise Ltd., which I do not knock because it makes a good honest effort to assist, has, as I said a few weeks ago in the mining debate, attracted only two jobs to replace the 10,000 lost in my travel-to-work area. The following week, I was taken up on that in the local press by a senior NCB official who said that my figure was wrong. Bearing in mind that I used the figures that he had sent to me, I was rather alarmed. However, I must concede that I was wrong. I gave that figure as two, but his figure was four. One can see from that the problems that we are experiencing in those areas.
We have tried to persuade the Minister to consider those areas for intermediate status or for development status to enable or encourage other industries to come into the area and provide employment. That would also encourage assistance from the EEC. However, at no time have we had any assistance whatsoever.
Those are the problems, and that is the great north-south divide which, in my view, has been further widened today. Despite what the hon. Member for Corby said, the Budget gives no encouragement to some areas. There is no joy in this Budget for the people in the areas to which I have referred. There is certainly no joy in it for pensioners, people living on the poverty line or low-paid workers. No


hon. Member could really suggest that there is anything in it for those people. If there is any gain in it, it will be for people such as ourselves, who are reasonably well off. I cannot help but feel that in this Budget the Chancellor has written off the north as without hope and that he feels that there is no point in giving the north anything. He has put all his thoughts into assisting the wealthier parts of the country.
As I have said, in the coal mining areas, many young people have not worked since they left school and have no chance of getting a home because the local authorities have been unable to build any houses, despite large capital receipts. A few houses may recently have come on to the market for letting, but those houses were flogged off by the National Coal Board to racketeers and speculators.
I provided information to the House a few weeks ago to show that there were empty NCB houses. I can inform the House that I have already produced, for the appropriate Minister, information on tenancy agreements that offer youngsters houses that were purchased for £2,500 for a rent of £35 a week, plus general and water rates and a £350 down payment for key money. That is before they can take out a one-year tenancy. Those are kids who have never known employment in their lives and who are desperate for a home. Some have small babies. These areas get no assistance from the Government and have not received any assistance in this Budget. On top of that, a£10 million tax has recently been imposed on the sick by the increase in prescription charges.
Today's Budget has been nothing but a smack in the eye for the lower paid and those in poverty. They will not receive one farthing. I hope that the Government will at least consider the areas to which I have referred. I must advise the House that the recent report from the Energy Select Committee about the future of the mining industry emphasised that there must never again be quite so rapid a rundown in any industry, especially the mining industry which has special communities, without preparation and advance financial assistance by the Government. That was the unanimous decision of that House of Commons Select Committee, which has a Tory majority.
I repeat that there is no joy in the Budget for those of us in the north or in mining communities. I had hoped that we might have received some sympathetic treatment, but it is fairly obvious that we shall not and that there is little sympathy for those of us in mining communities. I warn the House not to think that anyone in the mining communities is there to be knocked down because the Government think that they should be taught a lesson. The vast majority of the mining industry are hard-working, responsible people and they deserve consideration. I regret that the Chancellor has failed to consider them this afternoon.

Several Hon. Members: rose——

Mr. Deputy Speaker: Order. I am anxious to call hon. Members, particularly those who have sat through most of the debate, so I ask for brevity.

Dr. Alan Glyn (Windsor and Maidenhead): I shall be as brief as I can, Mr. Deputy Speaker. I wish to address two points to the hon. Member for Pontefract and Castleford (Mr. Lofthouse). First, the family silver has been sold to the people and has given them, as

shareholders, a stake in the country. Secondly, I congratulate him on the way in which he has represented his constituency. The Government must tackle the north-south divide, and I am sure that they will. I make those remarks out of courtesy to the hon. Gentleman.
Today's climate is the result of seven years' hard work by a Conservative Government, and the budget is both responsible and prudent. Our industrial output has increased by 2·5 per cent., and since 1980 our growth rate has been faster than that of any of our European partners. At the same time, we have invested £1,000 million abroad. That is not to he neglected, because it will bring in income in years to come. If one casts one's mind back to before the war, one remembers that we had vast overseas investments which paid for a great deal of our needs. We shall live to benefit from that investment, and I hope that the Government will continue it.
We are all glad to see a fall in inflation because it is an evil to all classes and all savers. We are also glad to see an incentive for North sea oil development, which is an important part of our revenue. The Government's approach has been cautious, and they are right. They have provided 1·5 million or 1·25 million jobs, depending on how the figure is calculated, but that is just the tip of the iceberg in reducing unemployment. Despite what Labour Members say, all Conservative Members are terribly worried about the level of unemployment.
The relaxation of corporation tax is welcome and will make life easier. As the hon. Member for Isle of Wight (Mr. Ross) said, my hon. Friend the Parliamentary Under-Secretary of State for Employment, the hon. Member for Rossendale and Darwen (Mr. Trippier), has worked hard for small businesses. We rely on them to become bigger. For goodness sake, let us have more encouragement from the banks to set up those businesses, if they are sound. We do not want the banks wasting their money on overseas loans which simply are not viable, and many never repaid, either capital or income. I ask the House to consider the debts that the banks have accumulated by doing that. It would have been far better if they had invested in our small businesses. For once, I disagree with the policy of the big banks.
We all recognise the value of the VAT concessions given to small businesses. If we want small businesses to prosper, the banks and the Government must provide money and the burden must be reduced, as the Chancellor has done today. Most important, we must ensure that they are not burdened with unnecessary forms to fill in at the end of the year. They exist to do business, not to fill in forms for the Government.
Profit-related pay will bring dividends. We have made 8·5 million people shareholders and 63 per cent. of householders are home owners. Those are ways in NA, which we can make society more democratic and turn it into a property-owning nation.
I welcome the concessions on pensions, which make them more portable, and help to the over-80s. Provision for one's old age must be made by the state and private enterprise. Everybody likes to see VAT on charities reduced, but I am not so sure about income tax reliefs. I am all for taking people out of tax and not so much for reducing tax in the top brackets. However, I must admit that by reducing tax at the top, one increases the incentive to work which, indirectly, increases employment. We are in a fix, however we do it. Taking people out of tax is an encouragement to work, but taking money off the top


layer also encourages people to earn more and to work harder. I do not know which is better. It is a mixed blessing.
The Government's aim, which is set out clearly in this document, is to create a property-owning democracy where people own their houses and are shareholders. They wish to create the feeling that everybody has a part to play. The harder they work, the more their company or institution will make, and they are benefiting from being shareholders.
There is one particular aspect of the Budget that I am unhappy about. We have not given sufficient thought to the training of young people. Technology has moved on and we must train young unemployed people at school, in jobcentres and anywhere else, so that they can compete in a modern, technological world.

Mr. Tim Yeo: I hope that my hon. Friend the Member for Windsor and Maidenhead (Dr. Glyn) will forgive me if I do not, in the interests of time, follow him down the route on which he embarked.
Nothing could have characterised more clearly the economic illiteracy of the Leader of the Opposition than his attempt to brand the Budget as a pre-election spending spree and a vote-grabbing Budget. No doubt that is what he expected when he prepared his speech, but it is not what he got. No doubt that was what the hon. Member for Sedgefield (Mr. Blair) expected when he said in this morning's press, "Beware of the bribes of March." Where were those bribes? They were conspicuous by their absence from the Budget.
In his Budget this afternoon my right hon. Friend was a model of prudence. It was a highly responsible Budget. It may even have been thought by some people to have been excessively cautious. In a year in which Government revenues are unprecedentedly buoyant, with billions of pounds coming into the Government coffers, my right hon. Friend has chosen to reduce the PSBR by £3 billion from the level that was projected for this year —although we have had a £3 billion undershoot in the current year—and the total amount of tax relief that he has given is less than £3 billion. It is a model of responsibility. I congratulate my right hon. Friend on the content of his Budget.
The Budget has been introduced against an exceptionally favourable background. That is not, as some people have suggested in the House and outside, a matter of good luck. It is the result of nearly eight years of good management. We are enjoying a steady growth rate of about 3 per cent. a year. This is not the stopgo cycle of the 1960s and 1970s, when the economy would charge ahead at 4 per cent. or more for a year or two and then the brakes would have to be slammed on. This is a sustainable rate of growth, and it is accompanied—this is important—by inflation being down at about 3 or 4 per cent. a year. That combination of steady growth and low inflation gives us the most favourable economic background that we have had for more than 30 years.
It is no surprise, therefore, that we are now seeing a substantial increase in productivity. It is no surprise that our share of world exports in manufactures—which is

measured by volume — having declined steadily throughout the 1970s, as the chart on page 25 of the Red Book shows, are now holding their own in the 1980s.
That is why the trend in unemployment will improve substantially in the coming year. We are already creating jobs at the rate of 250,000 a year and we will see unemployment coming down handsomely in the third term of the Thatcher Government.

Mr. John Maxton (Glasgow, Carthcart): Are there more people in employment today than there were in 1979?

Mr. Yeo: There are more people in employment today than when I entered the House in June 1983.

Mr. Maxton: That is not the question.

Mr. Yeo: That is the question that I am choosing to answer.
Something else that we have now that we did not have in 1979 or 1983 is £110 billion of overseas investments, which is second only to Japan. Our overseas investments have been more soundly managed. We are not excessively large holders of United States Treasury bonds. Our investments are well diversified in a variety of currencies and they will see us through the kind of crisis that we might face at some stage in the 21st century, as the overseas investments which were built up in the 19th century saw us through the second world war. That will be a pot of gold for the country to draw on in any future crises.
This combination of favourable circumstances is the result of prudent financial management and proper control over public spending, accompanied by industrial relations reforms. We have transformed the industrial climate and trade unions are now in the hands of their members rather than those of their leaders. Trade unionists can choose now whether to go on strike, and this is allowing industrial management to manage. Coupled with these developments has been an immense increase in share ownership.
We faced an extraordinarily attractive set of choices this year. We wanted to know which taxes would be cut and which might even be abolished and where we could increase spending. Contrast these choices with those that we used to face under Labour Governments. In 1978, when the Labour Government were being sustained in office by the Liberal party, whose representatives are sadly absent from the Chamber, we were faced with rather different choices. These included which taxes were to be increased and which new ones could be invented, such as the employers' national insurance surcharge. That surcharge was invented by the then Labour Government and the Liberal party did nothing to reduce or remove it when it had the chance to do so. If that Government did not have the nerve to increase taxes or invent new ones, they could cut spending. If they were not sure which course to take, the IMF was standing behind them to tell them exactly where they should make cuts.
I congratulate my right hon. Friend the Chancellor of the Exchequer most warmly on his Budget judgment. When the economy is growing already at a satisfactory pace, he is entirely right to use a substantial proportion of the resources available to him to cut the public sector borrowing requirement. We do not need presently another massive fiscal stimulus. Instead, we need a responsible Budget that will command the confidence of the financial market.
The Budget will lead to lower interest rates, and I believe that we shall see interest rates in single figures within days. The lower rates will benefit industry, and especially small businesses. There are other measures that will benefit small businesses. Lower interest rates will lead to the creation of jobs and will benefit directly every household that has a mortgage.
There would be little chance of lower interest rates if the policies of the Liberal or Labour parties, both of which are projecting a massive increase in the PSBR, were to be implemented. The Liberals, as always, want to have it both ways in their draft Budget. Despite advocating a huge increase in the PSBR, they imagine that, under their policies, interest rates will come tumbling down.
I am delighted that my right hon. Friend the Chancellor of the Exchequer resisted the temptation of introducing a tax cut of more than 2p in the pound. There is no economic or social case for a greater basic rate cut this year. Our long-term aim must be 25p for the basic rate and 50p for the top rate, and I am confident that we shall achieve that during the next Parliament. In 1987, our priority should be to help those on average earnings or below. My right hon. Friend reflected this, at least in part, in his decision not to raise thresholds for the 50 per cent., 55 per cent. and 60 per cent. rates. Indeed, he decided not fully to index the 45 per cent. threshold rate.
I should have been inclined to raise the basic rate threshold by more than the amount required by indexation, but I recognise that, having increased in real terms the basic rate thresholds by 22 per cent. since 1979, my right hon. Friend may feel that enough has been done. Of course, by this time next year, when the Social Security Act 1986 comes into operation, there will be less merit in raising basic rate thresholds because there will be a taper on the social security benefits that result directly from any increase in tax thresholds. It is, however, a most welcome aspect of the changes in personal tax allowances that a special increase in the age allowance for pensioners of over 80 years has been introduced. I am delighted that this has been done, and I am sure that it will be welcomed warmly by the many retired people who are living to a ripe old age in my constituency.
I have a passing regret that my right hon. Friend the Chancellor of the Exchequer chose not to build on the changes in national insurance contributions that he introduced in 1985. The lower rate bands of national insurance contributions paid by employees earning up to £150 a week offer the most cost-effective way for any Chancellor to give relief to low-paid employees. Indeed, my right hon. Friend can target relief to the three groups earning up to £150 a week without creating any administrative burden for the employer or the Inland Revenue. Those bands are already the subject of separate national insurance contribution calculations.
Without doubt, all the tax cuts that have been made this year will go a long way to improve work incentives. The right way to widen the gap between the take-home pay earned by someone in a full-time job and the income that that same person could obtain if he chose to live on social security benefits — [HON. MEMBERS: "Chose?"]. We are aware that that gap is much too narrow. We cannot deal with this problem by inflationary wage increases that undermine competitiveness and ultimately destroy jobs, nor by reducing social security benefit because, for those who are genuinely unemployed, their benefit levels are by no means generous. The right way to widen the gap is by

cutting the tax burden on the lower paid. I welcome the Chancellor's announcement today as it will help work incentives.
I also welcome the strengthening of the profit-related pay tax incentives. I hope that that scheme will have a wide take-up in all sections of industry. I also congratulate my right hon. Friend most warmly on resisting presssure— some of which may have come from close at hand—to increase the mortgage threshold on which tax is payable. I am glad that the threshold has been left at £30,000. Any increase in it would feed straight through into higher house prices. It would not help those on average earnings who are unlikely to have a mortgage of more than £30,000. It would do nothing to reduce the disparity between house prices in the north and those in the south that has already immobilised labour in the north and south. Any change would have represented money wasted.
I regret that the Chancellor proposed no significant change to capital gains tax for individuals. I believe it is wrong that capital gains are taxed at a higher rate than the basic rate of income tax. I also deplore the continued failure to index capital gains that arose from investments made before 1982. Many people are sitting on long-term investments that have made substantial gains most of which merely represents the effects of inflation during the 1970s. If the Chancellor introduced a lower rate of capital gains tax, it would lead to a significant increase in the yield from that tax. Many people are sitting on large gains that they will realise at a tax rate of 30 per cent., but if the rate was reduced to perhaps 10 per cent. we would witness a significant increase in the revenue received from this tax.

Mr. George Foulkes (Carrick, Cumnock and Doom Valley): What about charities?

Mr. Yeo: I will come to charities in a moment.
The relief available to people selling businesses on retirement is welcome. I am also pleased that the inheritance tax threshold has been raised bearing in mind that, in today's terms, £71,000 is not a large sum — it does not make someone rich to have £71,000.

Mr. Foulkes: What! The hon. Gentleman can write me out a cheque now.

Mr. Yeo: The Chancellor was right to emphasise that the inheritance tax is expected to yield £1 billion this year — more than three times the yield of the penal and confiscatory capital transfer tax that was left by the previous Labour Government.
I unreservedly welcome the VAT reliefs that have been given for charities. I am delighted to be speaking while my hon. Friend the Minister of State, Treasury is on the Front Bench. He will recall that I visited him some months ago as chairman of the Charities VAT and Tax Reform Group to make representations about a number of VAT anomalies. I am delighted that my hon. Friend has been able to persuade my right hon. Friend to meet our demands.
The relief that will be available for the installation or adaptation of bathrooms or lavatories for disabled people in charitable, residential homes is extremely helpful. I hope that that will be a useful step towards a sign of sympathy on other building alterations that charities must carry out.
The extension of the medical research concessions dealing with drugs and chemicals used by medical research charities is valuable. The concessions on welfare vehicles


used by hospices is also welcome. Those changes will receive widespread acclaim. The Red Book estimates that such changes will cost £5 million. I hope that those changes will cost more than £5 million, although I doubt that they will. Although we welcome the fact that the basic rate of income tax has been reduced year by year, each time there is a reduction there is also a reduction in the income that charities receive from covenants that the Government urged the charities to develop in the early 1980s. Two pence off the basic rate of income tax means a significant cut in the income received by many charities. They need the VAT relief which my right hon. Friend the Chancellor has given this year to compensate.
I am delighted that excise duties have been subject to the most minimal changes this year. That will be good for inflation. I suspect that my right hon. Friend's forecast for inflation for 1987 is a little on the high side. I would not be surprised if it were less than 4 per cent. by the end of the year.
The encouragement of more portable pensions is welcome also, as is the greater freedom for people to make additional voluntary contributions. However, in the long term, we need to educate the public about the risks inherent in relying too heavily on unit-linked policies.
The tightening of the other tax provisions is welcome. The VAT change allowing small traders to opt for accounting on a cash basis is extremely desirable, as is the opportunity for them to make annual returns.
There is only one omission from my right hon. Friend's Budget speech which I regret. There was no reference to tax reform. I hope that there will be a strong commitment to tax reform by the Government in the next Parliament. It is high time that we overhauled some of the anomalous treatments, especially of married women, under the present tax system. I hope that we shall look at the merging of national insurance contributions with income tax because separation of those two no longer makes sense. Tax reform must mean tax simplification. To get tax rates down requires the abolition of concessions, not the creation of new ones.
As my hon. Friend the Member for Stamford and Spalding (Sir K. Lewis) pointed out, the Budget must be considered in conjuction with last year's autumn statement, which contained almost £5 billion of new spending. That was the time of the big give-away. Today's Budget was a prudent and cautious statement. I believe that my right hon. Friend the Chancellor has made the right Budget judgment for the long term. His Budget is in the best interests of our economy. It is not an electioneering Budget and, for that reason, will win the election.

Mrs. Llin Golding: I should not like this opportunity to pass without raising the issue of those who are so often forgotten by the Government—the elderly and old-age pensioners. How does the Budget help them? How does it help the lady who spoke to me only a few days ago and told me of the time when she had applied for the special heating allowance but, because she had £536 in the bank, was not entitled to it? How does it help the lady who telephoned me today in tears and told me that she had to draw out the money that she had saved for her funeral to buy herself a new gas

cooker because she had not had a hot meal for 10 days and her 30-year-old gas cooker had been condemned by the gas board?
How does the Budget help the elderly who are worried about the payment of heating bills? How does it help the elderly who are worried about paying for their television licences—something about which the Government are not in the least concerned? How does the Budget help the elderly who are worried about paying their telephone bills? Their telephone is often their only lifeline to their families, yet no help is given to them. How does the Budget help the people who are just above supplementary benefit level who have not been given any additional help and who do not get any rent rebates? They do not pay taxes and they have no savings.
The elderly have worked hard, often for little money. They have created this country's wealth and have been forgotten, yet again, by the Government and by the Chancellor of the Exchequer.

Mr. Peter Thurnham: I join Conservative Members in welcoming the Budget in its prudence. It marks a turning point. The PSBR is low enough for us to see the prospect of lower interest rates, which I hope will soon be as low as those of our chief competitors so that British industry's costs through borrowing are no higher than those abroad.
The Budget holds out the prospect of continuous economic growth. We have had seven years of growth, and we can see the prospect of productive jobs instead of the sort of subsidised jobs that existed under the last Labour Government. The hon. Member for Kingston upon Hull, West (Mr. Randall) was, I think, referring to a letter in the Financial Times yesterday from four previous chief economic advisers. I find it a quite extraordinary letter. I see it as a small tombstone to the death of Socialist economic policies. Our success results from the reversal of all the policies that these gentleman must have advocated. I do not have in front of me the name of the present chief economic adviser, but I must congratulate him and his colleagues on being able to advise the Chancellor better than their predecessors did, if these latter have learnt so little that they say that
the increase in the number of 2 million unemployed since 1979 results from errors of economic policy.
Quite right, but it was from past economic policy in the years when those people were in office.
Which of these four magnificent knights was the one who recommended the jobs tax? Was that not a brilliant piece of economic and fiscal advice, the 3 per cent. surtax on jobs? Strangely, none of the four knights mentioned the job tax as part of the economic advice which he was so happy to give and which it was supposed would help in providing real jobs.
These people do not seem able even to recognise the success of present policy. They say that the economy has grown "at a moderate rate". They fail to realise that during the period of their advice the economy was growing at a lower rate than that of our competitors, whereas now it is growing at a higher rate, so how they can dismiss it as a period of moderate growth defeats me.
Again, they say that "slow growth since 1979" is the reason for high unemployment. If it is slow growth that causes high unemployment and we now have a higher


growth rate than do our competitors they answer their own question, because that must be an answer to the present problems of unemployment.
These economic advisers end their letter by saying that they
welcome the initiative taken by Hands Across Britain … on 3 May.
All I can say is that I hope that it will not be long after that that we go to the polling booths and make it "thumbs down across Britain" for Socialist policies. We all look forward to that.
One of the best bits of information in the Chancellor's speech was that export growth in the past three months was 6 per cent. above the previous year. That is where the real jobs will come from; that is the success of manufacturing industry.
I also very much welcome the downward trend of the unemployment figure, which has decreased in the past six months by 100,000. Where the policies of Opposition Members are so lacking is in their assumption that they can reduce unemployment by looking to local authorities as the instrument of growth, the sort of nonsense that we hear from the hon. Member for Kingston upon Hull, East (Mr. Prescott), who seems to have been gagged for the past few days.
I would, however, like to draw the attention of the Chancellor to the fact that if we look at the unemployment figures in some detail we see that, although the number of people unemployed for a short time has come down, the number of those who have been unemployed for longer has increased. Perhaps I could just refer to the figures. In 1983, when I was elected, the number of people who had been unemployed for five years or more was 66,500. The last published figure for the number of people unemployed for five years or more was 232,000, so there has been a substantial increase in the number of people out of work for a long time. I urge the Chancellor to redirect restart and all the other employment measures so as to pay greater attention to those who have been out of work the longest.
I welcome the provision to allow tax relief for training, but I suggest that we need to go further than that. I draw the Chancellor's attention to a scheme which has been run in Bolton for the past year or more and in which priority has been given on the community programme to those who have been out of work the longest. This is a scheme that I initiated with the help of various right hon. Friends and Ministers in the Department of Employment, and it is fair to say that the scheme has been greeted as a considerable success.
Just today I was very pleased to receive a letter from one person who has been on the scheme and who had been out of work for over three years. I had been very pleased to give him a reference on the strength of the work that he was doing there. He wrote:
Just a brief note to thank you for the reference you did for me, the reference indeed which helped me to secure a permanent position … I was one of the lads working on the site at the new Jerusalem Church … and my present employer (a nice term) said my appointment was due in no small part to the reference. So thanks again.
That was from Mark Longworth.

Mr. Derek Fatchett: The hon. Gentleman said that he recognised that there had been an increase in the long-term unemployed to well over 250,000 and that he regretted that. Does he see that figure as a success for the Government's economic policy?

Mr. Thurnham: I see it as a residual problem that arose from the policies pursued prior to 1979.
The people on that scheme were able to leave school and be given rates of pay that were above the market rate. They were people who did not feel it necessary or who were unable to gain the skills under previous policies. I call attention to the need to give greater priority to those who are in the predicament that they are in today because of the policies pursued by the previous Labour Government.
The Budget includes provision for the disabled, which is welcome. The blind allowance rises from £360 to £540, and there are additional charitable exemptions from VAT, including items for handicapped people in homes, as well as rescue and first—aid equipment. I should like to mention two stories in the newspapers in the past day or two. In one case, an award of £500,000 was given to a child who had been severely handicapped as a result of an accident and inadequate care afterwards. If it is possible for some people who care for a handicapped person to have £500,000 to help, why is that not available to all? In New Zealand and Sweden it is possible for funds to be made available on a no-blame basis. and I should like to draw the Chancellor's attention to the need for all people who have to care in such situations to have more help.
There was a great outcry about the need for the sterilisation of a young 17-year-old girl. People are living in cloud-cuckoo-land if they do not feel that adequate funds should be made available to help individual people provide care for that sort of person, rather than leaving it to institutions, where the problem is so much greater.
I congratulate the Chancellor on his excellent Budget, which lays the ground for continued economic growth and greater wealth. Through that greater wealth there will be an opportunity to provide care and greater provision for those in our society who are in the greatest need.

Mr. Ray Powell: I listened to the Chancellor from the start of his speech to the end and I listened to the Leader of the Opposition's reply. I am pleased that my right hon. Friend the Leader of the Opposition was able to highlight the fact that the Chancellor has not given consideration to the people I represent in Wales, especially in Ogmore. Over the seven years of the present. Administration, unemployment in the constituency of Ogmore has risen from 3·7 per cent. to 20 per cent. In part. of my constituency, Maesteg, with a population of some 26,000, the male unemployment rate over the past three years has been 40 per cent.
Given those figures in an area such as Ogmore, the Chancellor should have looked more seriously at the bonanza he talks about. He pretends to be a Santa Claus to those who are rich but he is a Scrooge to those I represent—the 10,000 people in Ogmore without a Job.
A number of people will obviously benefit from the Budget. Many rich city dwellers will receive tax relief on pensions amounting to £150,000. Most of my constituents—those in work as well as those out of work—would think that they had won the pools if they had £150,000 in the bank. Such tax relief would be out of the question for 99 per cent. of the people whom I represent.
Surely we must be concerned about underpaid and underprivileged people in society. Most low-paid people live in the deprived areas of Wales, such as that which I represent, where, in the past seven years, the Government's policies have deliberately de-manned the


steel industry and resulted in the closure of mines. Five collieries in my constituency of Ogmore were closed in 1983. Two collieries in the area that I have represented since 1983 that were in the Pontypridd constituency have been closed. Seven collieries, with a work force of well over 3,500 people, have been closed as a deliberate attempt by the Government to ensure that coal mining areas in Wales were decimated. Indeed, the collieries to which I refer would have been of great national importance. They produced the best coking coal in Europe. They were closed in a deliberate attempt by the Government to force people into the unemployed ranks.
Comparing the present number of people who are out of work with the number who were out of work in 1979, we see that there was a deliberate attempt by the Government to suppress workers and their demands for extra pay for the services that they offered, and to suppress the trade union movement. That attempt might have succeeded. Together with the oil bonanza, it might have given the money that the Chancellor has to disburse. But all the evening newspapers have quite deliberately suggested that the money could have been better used in creating employment.
In Wales in particular, it will not create necessary employment. As the right hon. Member for South Down (Mr. Powell) often says, it is passing strange that, for seven years, the Chancellor and his predecessor have continually talked about restraint and have assured us that successive Budgets would curb public expenditure. After seven years, and indeed on the eve of a general election, we find that the Chancellor has found money to disburse to people in the higher income bracket.
I wonder how much money will go to the Ogmore constituency. How much will go to the 10,000 people who are out of work in Ogmore? How much will go to the coalfield communities of Ogmore that are now totally depressed, annihilated, with few factories and with little money coming in for factory development? The people whom I represent do not have much hope for the future. This Government could have given £4 billion to the British people. Instead, the people who will benefit from the £4 billion will be the better-off.
In tonight's edition of the London Daily News, John Shields refers to the Chancellor of the Exchequer playing Santa Claus. In the second paragraph of his article, he says:
They are the unemployed, who seem set to lose out once again, even though it is partly on their backs that the foundations for the current 'success' have been laid. Only six or seven years ago, in less bounty-ridden days, nothing was being given away. Cuts were applied only to public expenditure, never to tax. Priority was given to controlling the money supply, constraining public borrowing and cutting public expenditure.
What John Shields says is quite true. Public expenditure cuts in my constituency mean that a scheme for 500 houses in Ogwr borough has been cut since 1979. The number of people on the housing waiting list in 1979 was 1,720. The number now on that list is 2,500. A limited amount of money is available for spending on public housing. We can build only 100 new houses a year.
There are 177,000 people out of work in Wales. The Tory Government did not inherit that level of unemployment in 1979. Unless something is done about the unemployed in areas such as mine, the direct result will

be an increase in crime. Instead of providing tax relief bonanzas, the Chancellor of the Exchequer should have tried to combat the increase in crime.
When I look at people in my constituency, I see the degradation of unemployment. I see that 16 and 18-year-olds have no chance of a job because of this Government's policies. Despite the opinion polls, the Chancellor of the Exchequer will be kissing 100 of his hon. Friends goodbye at the next election. It is time that the Government appreciated that those who are out of work are demanding that this Government, or the next Labour Government, should do something about unemployment. Those who are out of work, with no chance of a job, will remember the Government's actions and this Budget at the next election—whether it is in June, or October, or next year —and they will vote for a Labour Government.

Mr. James Couchman: I shall not detain the House for very long, because I know that several hon. Members want to speak. However, I want to make a short speech as an employer who owns a small company in the licensed trade. I welcome much of what my right hon. Friend the Chancellor introduced in the Budget.

Mr. Fatchett: Is the hon. Gentleman supposed to be representing a constituency?

Mr. Couchman: Of course I am representing a constituency and I shall say so throughout my speech. [Interruption.] Does the hon. Member for Leeds, Central (Mr. Fatchett), wish to intervene from a sedentary or standing position?
For two years my right hon. Friend the Chancellor has taken steps to assist small companies and particularly the succession of ownership of small companies from father to son, which will improve the security of those small family businesses. I welcome the changes in VAT which will apply to businesses smaller than my own. A technical change in the partial exemption rules on VAT will be less onerous to the licensed trade than was first thought.
The decision not to increase excise duties on beers, wines and spirits for the second year running will be very welcome to a trade which is still suffering from recession and from a change in drinking habits. In 1981, when my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) introduced his Budget, I had the doubtful pleasure as a licensee of offering instant comment on one of the most swingeing increases in duty ever. That increase had a marked and deleterious effect on the trade of all licensed outlets. I hope that my right hon. Friend the Chancellor's restraint today will lead to a new buoyancy in the licensed trade.

Mr. Maxton: Does not the hon. Member have any regard at all to the appalling health problems created both by alcohol and tobacco? Does he not think that perhaps the Chancellor ought to have increased the price of both alcohol and tobacco to try to stop people partaking of them?

Mr. Couchman: The hon. Gentleman knows that we had an excellent debate a fortnight ago on the licensed trade, licensing reform and abuse of alcohol. The hon. Gentleman may have been present on that occasion to make his point.
It is in personal taxation that changes will be most widely welcome. My business employs many people on


comparatively low incomes. Full-time bar staff generally live in and enjoy free board and lodging, but their weekly wages are comparatively modest. A gross wage of perhaps £125 a week will lead to an increase in net pay of something over £2 a week. I do not think those employees will take the £2 and buy a postal order and send it to the Chancellor in the hope that he may use it on increased public expenditure.
I do not think many people will refuse the reductions in taxation, in the amount of money which the Chancellor takes from us, and then ask for that money to be used on increased public expenditure.

Mr. Foulkes: Will the hon. Gentleman give way?

Mr. Couchman: I am not giving way.
It is also fair to say that my managers will much welcome the Chancellor's proposals for profit-related pay. Those proposals are likely to be extremely beneficial to them and to many other people who will in future share in the profits of the company for which they work.
I join many other hon. Members in welcoming the VAT changes affecting charities, the increase in the allowance for the blind, and especially the new higher age allowance for those aged 80 or over, in line with this Government's institution of a pension as of right for all over 80, which was resisted by the last Labour Government, despite many attempts to bring it in.
Because of my responsibilities as PPS to the Minister for Health, my hon. Friend the Member for Braintree (Mr. Newton), I perhaps should confine to a warm welcome my comments on those aspects of the Chancellor's Budget which relate to the DHSS.
Some Opposition Members have complained that the Chancellor has not introduced various increases in public expenditure. I remind them yet again of the increase of nearly £5 billion which the Chancellor introduced with the public expenditure White Paper in the autumn.
I could say much more, but I am conscious that there are at least two more hon. Members who wish to speak this evening. This has been a good Budget for business and for the individual. I believe that it will be modestly beneficial in creating jobs. I am certain it will be invaluable in securing existing jobs, especially those provided by small family companies such as my own.

Mr. Michael McNair-Wilson: I can hardly be the Member for Newbury, with its famous racecourse, without wanting to say at least thank you to the Chancellor for removing the tax on on-course betting. I hope that it will encourage people to come to that racecourse and enjoy the pleasures of racing. That will be good not only for the racecourse but for Lambourn in my constituency, where so many excellent race horses are trained to such high standards.
There can be few Chancellors who have had the opportunity which was presented to the Chancellor this afternoon of being able to bring forward a Budget in which he could restore income to people's pockets without affecting the broad thrust of economic policy. The fact that the Chancellor has been able to do that speaks volumes for the effective way in which he has handled the economy.
I am particularly delighted that my right hon. Friend has been able to reduce the basic rate of income tax by 2p

and raise tax thresholds. Pre-Budget speculation from all shades of political opinion in the House endorsed the assessment that the Chancellor brought into effect, namely, that he had sufficient revenue for a massive redistribution. The only question that arose—I suspect one inspired as much by electoral considerations as by reality—was whether he should use that redistribution to reduce the burden of tax or to increase public spending. In choosing to reduce the burden of tax I think that he made the right choice.
The argument that a tax cut will simply stoke up a consumer boom, which in turn will suck in increased imports, seems to miss the point of tax cuts. The country is heavily taxed, whether in terms of direct taxation, value added tax or through national insurance contributions. We know that in wage negotiations the effect of tax and the likely effect of inflation have been dominant considerations which have led unions, particularly those in the public sector, always to ask for large pay rises on the basis that inflation would erode them after a short time.
I suggest that a reduction in taxation will be what the Chancellor said it would be—a true incentive toward wage restraint. Lower direct tax will reduce the pressure for unreasonably high wage settlements, particularly in the public sector. By that I do not suggest for a moment that the public sector should not get reasonable wage increases. But we are now in a different atmosphere in which those negotiating public sector pay rises will be able to recognise that they should not have to allow for high inflation and the effect of high taxation, and that they can ask for more reasonable wage increases.
In those terms, I also welcome the tax inducement in the Chancellor's proposals for profit-related pay. Like the reduction in the basic rate of tax, that must assist our competitiveness if it encourages people to hold down wage claims. As competitiveness is one of the most important factors in employment, I disagree totally with the claim of the Leader of the Opposition that there is nothing in the Budget for the unemployed. We must take account of the seven years of steady growth in the economy and the recovery in the manufacturing sector of industry. It has still perhaps some way to go before it reaches the level that we want to see, but there has been recovery from a restructured industry. Those facts and the downward pressure of wage claims that will result from the Budget will help to keep industry competitive and thus enable us both to hold current markets and to gain new markets.
Who in the House would deny that if we can gain new markets for industry we can find new jobs for our people and real prosperity for the nation? If the Opposition tell us that that is not the case, what case would they choose to argue? I believe that this Budget is good for employment opportunities.
Those who say that a direct cut in income tax will simply stoke up a consumer boom are claiming that it will also therefore increase imports. I suggest that they are wrong. If they choose to come to my constituency they will discover that Sony has established a large factory, that Norsk Data has also a factory and that Bayer Pharmaceuticals from Germany has also set up in my constituency. That foreign inward investment has brought job opportunities that did not exist before. Those who say that an import boom is bound to follow from a cut in taxation are providing a counsel of despair. In effect, they are claiming that this country is no longer able to pick up


the challenge from the new demand that will arise from the reduction of taxation. They are also arguing that companies brought into this country will somehow not continue to come in to meet that demand. Far from seeing an import boom, I believe that we will see a growth in more British business.
We have become a little obsessive about referring to all—British companies. That is an old-fashioned idea. We are members of the European Economic Community and we hope for a European industrial structure. I believe that international companies should be set up in this country and elsewhere. It is important that Britain's input to those companies in this country should consist of an input of people and skills. British companies should find opportunities to do likewise abroad. That is why I welcome the fact that our overseas assets are now at such a high level.
Another advantage of the Budget is that it finds time to consider other areas of our society that are in need. Reference has already been made to the changes to be made to charities to improve what they are able to receive from companies wishing to help. We know that hospices and the vehicles that they use are to be freed from VAT, as are hospice drugs for sick people. The old age allowance is to increase and the blind allowance is to be improved. All these measures—small though they may be—suggest that the Budget is more broadly based than one that simply seeks to concentrate on any one sector of the economy.
The tax cuts to which I have referred and the other benefits in the Budget must be seen against the autumn statement, in which a further £600 million was given to the National Health Service to bring total expenditure on the Health Service up to about £19 billion, which is rather more than twice the amount that the previous Labour Government spent on the service. The autumn statement also included a further £2 billion for the education service. That means that expenditure on education is at its highest ever level. The old-age pension today is buying more than it has ever bought in the history of our people.

Mr. Foulkes: Will the hon. Gentleman give way?

Mr. McNair-Wilson: We must remember that inflation has been running at less than 5 per cent. for the past two
years and looks like remaining at that level. We must therefore realise that the economy is being handled by the Government in a way that the nation has not seen for several decades — if ever. When I put all these facts together and think particularly—

Mr. Foulkes: Will the hon. Gentleman give way now?

Mr. McNair-Wilson: I think particularly of the reduction in taxation and lower inflation rates, and the effect, as I have said, will be that wage restraint will become a new reality for all those going forward with wage claims. As I have already said—but will repeat because it is so important — this nation can regain its competitiveness because of wage restraints. Because it will regain its competitiveness, we shall have a real opportunity to expand the economy in terms of extra trade, more jobs and more real prosperity, from which will come the additional money that we would all like to see go into certain sectors of the national social economy. As we know, unless this nation earns its living and has more than enough out of that living, it cannot expand what it spends and we shall not be able to have the real funds that need to go into the National Health Service, education or higher education.

It being Ten o'clock, the debate stood adjourned.

Debate to be resumed tomorrow.

AGRICULTURE

Ordered,
That the provisions of paragraph (2) of Standing Order No. 84 (Constitution of standing committees), paragraph (1) of Standing Order No. 86 (Nomination of standing committees) and Standing Order No. 101 (Standing Committees on Statutory Instruments, &amp;c.) shall apply to the draft Revised Code of Recommendations for the welfare of domestic fowls, the draft Code of Recommendations for the welfare of ducks, the draft Code of Recommendations for the welfare of rabbits and the draft Revised Code of Recommendations for the welfare of turkeys as if the said draft Revised Codes and draft Codes were draft statutory instruments; and that the said draft Revised Codes and draft Codes be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Lightbown.]

Part III Accommodation

Motion made, and Question proposed, That this House do now adjourn,—[Mr. Lightbown.]

10 pm

Mr. Richard Holt: One of the characteristics of life is that we all want to live as long as possible and to a ripe old age. However, I wonder whether everybody looks forward to his old age with the same equanimity. Some people, as they get older, are less able to look after themselves and finish up in what is called, in shorthand, part III accommodation. This is often regarded as accommodation where once people have gone in they never come out on their own two feet. Happily, today more and more people are able to live longer and sustain themselves in a much more healthy state than in the past. Consequently, not only are people in part III accommodation in there merely because they are seeing out their last days, but they can and should be able to enjoy themselves in their twilight years, although they are old, ill and frail.
My Adjournment debate was prompted when I had the privilege of visiting some part III accommodation in my constituency last November, on the occasion of the 100th birthday of one of the residents who, I am pleased to say, still enjoys a long daily walk and is still able to have a good and lucid conversation with all people who visit that establishment. I was delighted to see so many males in that accommodation. I am accustomed to finding the ladies outnumbering us by about 10:1.
This gentleman assailed me on one particular point, which I felt bound then, and I am delighted for the further opportunity now, to bring to general attention. It is that people in part III accommodation are forced into a form of pocket money penury because of the rules that dictate how much they are allowed to spend while resident in the accommodation. The amount of money is so small that it is not sufficient to allow the ambulant but old people in part III accommodation to go out, as they have done throughout their lives, at night, round to their local pub and sit there and enjoy a pint, and smoke their pipe and perhaps tell a few tales of what it was like when they were young.
It is odd that the total amount of money that the people who are resident in part III accommodation are allowed is £7·75 a week, unless they have worked hard all their lives and have an occupational pension to supplement it. They may have a war pension or an occupational injuries pension. If they have a pension that they have earned while they have been working, all of it except for £4 is taken from them, and they are allowed to supplement their £7·75 with the £4. If they have not earned that sort of pension, they are stuck on the £7·75 limit.
When the Minister replies, I should like her to support me in saying that that amount of their own money, which they have saved and worked for all their lives, should not be confiscated in that manner and that people in part III accommodation should be allowed sufficient to meet simple needs. I doubt whether, if they were given total licence, they would want to drink three, four or five pints of beer, to smoke two pipes at once or that the ladies would want to put on new make-up six or seven times a day. However, that is the limit that they are now allowed to spend.
I repeat that those old ladies and gentlemen are not prisoners. They have not been sent to part III accommodation because they have committed a crime, unless becoming old is regarded as a crime in itself. They are there because they need to be looked after. It is not unusual to find, among partners, who have lived together for many years and shared the household duties and chores that, when one passes on, the other one is incapable, of sustaining himself or herself properly when alone. Quite rightly, they are admitted to part III accommodation. However, when they are there they must not, and should not, feel that they have been sent there as if to serve out a sentence. They should not have their money reduced to the extent that they do not have sufficient for a modest extra standard of living in their latter days.
It would not seem unreasonable for the Government to review the amount of clawback so that the residual moneys that are left to the old people will enable them, if they wish, to buy a drink for someone else in the pub at night when they go out, or to buy another person a cup of tea at the café round the corner when they go out for a walk during the day. It does not seem unreasonable that that should be reviewed.
I put that point to the Ministry after my visit to the old people's home last November. I received a reply in February. I do not know whether it was hoped that my 100-year-old would have passed on by then, but I assure everybody that he is still hale and hearty and going out for a walk every day. I do not need to remind my colleagues and others who have followed these matters that one of my constituents will be going to New York, via Concorde, in August for her 110th birthday.
If people can live that long and enjoy life, why, just because they have had to go in to part III accommodation, should they be regarded as second class and inferior? The pocket-money syndrome is distasteful and a further aspect of this issue which requires urgent consideration and action. Not only are those people penalised because they have worked and earned their own pension, or served in the forces and earned their own war pension, but if they have owned their own home and followed the Conservative party philosophy of thrift they are penalised over and again.
If such people have assets of £1,200 or more, which include their house which may still be unsold, they are penalised by having a notional return on their capital calculated at the rate of 25p per £50 per week. That works out at 26 per cent. Any usurer who charged 26 per cent. on capital would quickly find himself in hot water with the press and with public opinion. Yet that is what we charge people who have worked, saved and bought their home when they go into part III accommodation.
The residual assets may be a modest £15,000. We are talking not about a grand house but the sort of house that many of my constituents live in. In practice, a house valued at £15,000 would be reduced in the first year by £3,600, in the second year by £2,600, in the third year by £2,000 and so on until no value remains. What is the point of encouraging people to become home owners, to live a family life and have something to pass on, if all their savings are likely to be swallowed up in their latter years simply because they become old and frail?
Every Government since part III accommodation was introduced have known about this position and every Government have tut-tutted and said, "We should do


something about it, but, oh dear, what?" When the disregard figure is £1 from an occupational pension and everything else goes towards the cost of being kept, the position requires review. The majority who have done nothing for themselves and, equally, find themselves in part III accommodation are sustained in full by the state. The number of those who are penalised in this way is small. They are a minority who seldom grumble or have their legitimate grievances aired sufficiently or brought to light.
I noted two specific points in the letter of reply from my hon. Friend the Minister in February. First, the Government have set up a joint working party. As we all know, that is shorthand for saying, "This is a hell of a problem, so we have kicked it into touch and, having done so, we hope to God that no one will ask us to find the ball." The answer I am given is that the Government hope to have some sort of answer to harmonise fiscal support and people in all sorts of residential care in the spring of 1987.
The working party first met in March 1986. I cannot understand how grown men and women, presumably with some intelligence because they have been put on the working party, must take so long to reach a simple conclusion about whether £1 is a reasonable figure in this day and age. I do not know of any law which forbids an interim report or prevents the Government from introducing the recommendations of an interim report. But I know that this matter leaves a sour taste in my mouth. Some of these elderly people, for no reason, are finding that all they have lived and worked for is being eroded, while those who have not bothered to look after themselves, to save, to enter into a pension scheme or take out some personal pension plan and who share the same accommodation are in a different position.
It is equally difficult to understand why the Government have different figures for people in part III accommodation provided by local authorities and for those who live in private residential homes in the private sector. Why should somebody in the private sector be allowed more pocket money than somebody who is not? If they go out together and have a drink, the landlord does not say, "I will charge you more and you less." He charges the same amount of money.
Secondly, I was rather disturbed—indeed, offended—by one aspect of the communication that I received, which says:
But even if the discretion is not exercised"—
that is a discretion for the local authority to supplement the personal allowance out of the rates—
there is nothing to prevent residents from supplementing their allowance from any capital they may possess.
I read that as meaning that if I am old the Government are saying that I may spend my money if I so wish. I hope to goodness that I am entitled to spend my own money. I should like to think that everybody is entitled to spend his own money if he so wishes. None of us should be hidebound by what was introduced in 1948. That was something to be euphoric about in the welfare days of 40 years ago, but it is time now for a review. It is not a time for the Government to hide behind working parties. It is time to recognise that the cost of living has risen considerably over 40 years. To suggest that we still do not make any special recognition of those who enjoy war

pensions—in which I must declare an interest—is an insult to those who have obtained a war pension as a consequence of their service to their country.
The eyes in the House tonight may not be many, but the ears of the world will be listening for the Government to say that they have taken on board this anomaly; that they recognise the injustice and unfairness of the present situation; that to grow old is not a crime and to save money to spend in old age should not be something for which we should be penalised; that in the end there will be equal treatment of all people, and if one has saved money one will not suffer consequently.
Information that I have received suggests that the major weakness in the existing scheme is that the person who is in the know can divest himself of the greater part of his fortune, and will hence be obliged to pay only the minimum. That is not the proper way of going about things. I shall listen with interest to hear how the Government will tackle this problem.

The Parliamentary Under-Secretary of State for Health and Social Security (Mrs. Edwina Currie): I should like to congratulate my hon. Friend the Member for Langbaurgh (Mr. Holt) on his success in the ballot. I know how much he cares for the welfare of his constituents, as has been shown by his efforts in the debate.
As my hon. Friend rightly says, he wrote to us on 12 November. I am delighted to hear that his constituent is still in good health. Indeed, his constituent will have benefited from today's Budget, with the increase in tax allowances for the over-80s, and the excise duty on his favourite tipple remaining unchanged. Indeed, one suspects that my hon. Friend's constituents' children will have benefited from the increase in tax allowances for the over-80s as well. We are glad about that.
The overall aim of our community care policy is to enable elderly people to remain in the community, preferably in their own homes, for as long as possible. That is what they want and what those who are responsible for their care think is best for them. However, there will always be some people who are unable to live independently, even with help, and for them residential care in an elderly persons' home may be the only alternative.
Local authorities are responsible for providing residential care for any elderly person who, because of age, frailty or any other circumstance, is assessed as being in need of such care. The financial circumstances of the individual therefore do not come into it.
The number of homes and places provided by an authority is a matter for the authority. The number of people now resident in homes for the elderly who are aged 65 years or over has been rising quite dramatically. The provisional figures for 1986 suggest that the total has topped 200,000 for the first time, about 101,000 being in local authority part III homes, about 25,000 in voluntary homes and about 75,000 in private homes.
The provision of residential accommodation by local authorities was never intended to relieve people of responsibility for meeting the costs of their accommodation and upkeep, which they would have to bear if they were living in their own homes. It seems only reasonable that anyone who is able to make a substantial contribution towards the cost of his upkeep should do so. Successive Governments have supported this arrangement, which I


am sure is right. Whether current arrangements for calculating how much someone should pay are fair is another matter. It is a number of years now since the details of the scheme were revised.
Local authorities are required to determine a "standard charge" for their accommodation, which should represent the full economic cost. The average cost of a part III place in England is about £120 per week, compared with the current board-and-lodging limit in private homes of £125 per week. If a resident is unable to pay the standard charge, the authority is obliged to assess the amount that he is able to pay and to charge at such lower rate accordingly subject to a prescribed minimum, which is currently £30·95 per week and which is to be increased to £31·60 from 6 April. The resident retains a prescribed minimum allowance for personal expenses, which is currently £7·75 and which will be increased to £7·90 from 6 April.
My hon. Friend has referred to the working party, and we are trying to devise a new charging and assessment system for part III accommodation that might take account of some of the difficulties that he has mentioned. A consultative document was issued early in 1984, and the response to its proposals could not be regarded as enthusiastic. Further action was deferred pending consideration of the use of public funds to support people in all types of residential care. That is what is currently in the hands of the joint central Government and local government working party, which is chaired by our official, Mrs. Joan Firth, and which is due to report shortly. It is not known how many residents pay at the prescribed minimum rate for their accommodation but we estimate that about 70 per cent. do so. About 20 per cent. pay a rate between the prescribed minimum and the standard charge and 5 per cent. pay the full charge.
My hon. Friend referred to disregards and picked up some of them, as I would expect, with his normal accuracy. A local authority's assessment involves a calculation of income and capital resources based on the method used until 1980 for assessing eligibility for supplementary benefit. The method is set out in part III of schedule 1 to the Supplementary Benefits Act 1976. Certain limited forms of income—for example, payments to holders of the Victoria Cross or George Cross—are disregarded in full, as well as, at the authority's discretion, other forms of income such as gallantry and service awards.
In addition, charitable and voluntary sums for a specific purpose, such as payments for holidays, can be disregarded. Other forms of income, such as war disablement pensions, are disregarded up to an aggregate limit of £4. This rule is in line with current supplementary benefit provision. Under the income support scheme, most forms of income will be taken into account in full. Additionally, there is a £4 disregard from any weekly earnings, but the number of residents affected by this is likely to be exceedingly small.
My hon. Friend is right to say that occupational pensions are now taken fully into account. They are no different from other basic forms of income, such as the state retirement pension, which has always been taken fully into account. For part III assessment purposes, the £1 disregard which was set in 1966 is still allowed.
When dealing with capital, my hon. Friend was right to say that the first £1,200 of a resident's capital is disregarded. The tariff income is assessed at 25p per week for each complete £50 of capital above that level. That

means that the assessed ability to pay rises gradually and does not reach payment of the full cost of a place in a home until a substantial amount of capital—about £25,000 depending on other resources—is held.
It is recognised that residents will gradually use up their capital above £1,200 to pay towards their accommodation. Of all the concerns expressed about the part III charging arrangements, the treatment of capital has attracted the most criticism. That is principally because of the higher capital disregard—£3,000—that applies to supplementary benefit claimants. This has been represented to us as anomalous and unfair and it is one of the key issues that is being addressed by the working party to which I have referred.
The personal allowance is intended to enable residents to buy personal items such as toiletries, stationery, newspapers and other personal items. The prescribed minimum rate that has been set by successive Governments is about one fifth of the standard rate of retirement pension.
The hospital downrating of national insurance benefits reflects the fact that for long-term patients in hospital their board and lodging is provided free and their needs will normally be limited to the personal items such as I have mentioned. People in part III accommodation are essentially in no different position in that their accommodation and upkeep—if they were at home they would have to pay for themselves—is provided by the local authority. In the case of people in hospital and part III accommodation, it is not expected that the allowance should be spent on expensive items such as clothing and footwear, as those should be provided by the local authority or hospital. Of course, residents are free to choose to spend their allowance in this way if they wish.
The average age of permanent admission residents to part III accommodation is about 82 years. Many residents are unable to make much use of their personal allowance.
In many cases, that allowance simply accrues and eventually forms part of the resident's estate. One must consider whether an increase across the board would produce any major increase or improvement in welfare.
We accept that part III residents may occasionally find it difficult to meet the cost of outside social activities. That could be equally applied to anyone remaining in their home in the community on a low income. The personal allowance of people in private residential care—my hon. Friend drew attention to this — and who may be supported by supplementary benefit is £9·05. That is intended to cover any item of personal expenditure, but it includes clothing. That is the reason for the difference.
With regard to the particular interest of my hon. Friend's constituent, I checked up in the 1985 family expenditure survey and I discovered that in households with a couple or one pensioner living alone, the average expenditure on alcohol and tobacco was 5 per cent. of income—£5·80. That suggests that the £11·75 that my hon. Friend's constituent has been able to enjoy should cover at least the expenditure that one might expect if he were living at home. It is to be hoped that the gentleman's generosity and sociability is also recognised by those he meets and that they are able to buy him a round in return for those he buys.
My hon. Friend spoke movingly about the problems that can arise. I wonder how much resentment might be generated should any Government decide to ignore large amounts of capital income and whether those without such


benefit, savings and foresight — and perhaps, without such fortune—might regard that as fair. The home costs the same to run whether the residents are wealthy or have nothing. Admission to part III homes is based on the need of that person for physical help and not his financial circumstances.
I hope that I have been able to answer a number of the queries raised by my hon. Friend. Many representations have been made to us on those matters. They are under consideration and we hope that we may see some improvement soon.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes past Ten o'clock.